FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[*] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to _________________
Commission File Number 000-7633
CONTINENTAL HERITAGE CORPORATION
(Exact name or Registrant as specified in its charter)
Delaware 75-1449332
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2140 America's Cup Circle, Las Vegas, Nevada 89117
(Address of principal executive offices)
Registrant's telephone number, including area code: (702) 228-8146
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
None --
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value per share
(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [ * ] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ * ]
State issuer's revenues for its most recent fiscal year: $220,870 State the
aggregate market value of the voting and non-voting common equity held by non-
affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $*.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 after
distribution of securities under a plan confirmed by a court. Yes[ ] No [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 6,873,860 shares of Common
Stock outstanding as of January 31, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Information Statement pursuant to Section 14(f) of the Securities Exchange Act
of 1934 and Rule 14f-1 thereunder filed with the Securities and Exchange
Commission on November 25, 1998.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [*]
TABLE OF CONTENTS
Page No.
Item 1. BUSINESS 1
Item 2. PROPERTIES 3
Item 3. LEGAL PROCEEDINGS 4
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 4
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 4
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATION 4
Item 7. FINANCIAL STATEMENTS 10
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 10
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT 10
Item 10. EXECUTIVE COMPENSATION 12
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 13
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 14
Item 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS OF FORM 8-K 15
PART I
Item 1. BUSINESS.
Introduction
Continental Heritage Corporation was organized in 1974 for the purpose of
operating and developing real estate and other investment projects for its
stockholders. During the three fiscal years ended October 31, 1998, the
Registrant through its subsidiaries continued to be engaged in various aspects
of real estate business, such as management and investment in real properties.
During the three fiscal years ended October 31, 1998, the Registrant's business
consisted of the ownership of both an office building in Hurst, Texas and one
undeveloped real property parcel. The Registrant has not been able to interest
developers or financial institutions in assisting in the development of its
undeveloped property. The office building in Hurst, Texas is a one story brick
veneer building consisting of approximately 27,000 square feet.
During the three fiscal years ended October 31, 1998 and for the period of the
current fiscal year to date, Registrant's income arose solely out of the rental
revenues derived from the office building in Hurst, Texas.
The Registrant during the past several years has in general been able to meet
its current obligations from rental revenues produced by the Hurst, Texas
office building. The Registrant attempted to expand its business interests by
acting as a real estate agent but did not realize any income from such
activity. All such efforts have been terminated.
Stock Exchange Agreement with Encore International, Inc.
As previously reported in the Registrant's Current Reports on Form 8-K filed
with the Securities and Exchange Commission on September 14, 1998 and December
8, 1998, pursuant to a Stock Exchange Agreement (the "Agreement") dated
November 27, 1998 between the Registrant and the holders of all of the
outstanding shares of Common Stock of Encore International, Inc. ("Encore"),
the Registrant acquired all of the outstanding Common Stock of Encore in
exchange for an initial issue of 5,500,000 shares of the Registrant's Common
Stock (the "Transaction"). As a result, Encore became a wholly owned
subsidiary of the Registrant. The Agreement additionally provides for the
issuance of an additional 2,000,000 shares of Common Stock as follows: (i)
1,000,000 shares to be issued if the consolidated net revenues of the
Registrant are at least $8,000,000 for the twelve month period commencing March
1, 1999; and (ii) 1,000,000 shares if the consolidated net revenues of the
Registrant are at least $15,000,000 (on a non-cumulative basis) for the twelve
month period commencing March 1, 2000.
New Business of the Registrant
Encore is a recently organized corporation that was established to conduct a
business of distributing nutri-ceutical (nutrition supplements made to
pharmaceutical standards) and homeopathic products through a network of
independent distributors. Effective February 5, 1999, Encore, an Oklahoma
corporation, was merged with VisionQuest Worldwide, Inc. ("VisionQuest"), a
Nevada corporation and a wholly owned subsidiary of the Registrant, and will
hereafter operate under the name of VisionQuest. It will operate from
headquarters in Las Vegas, Nevada. VisionQuest's business plan provides for the
development of a complete line of nutri-ceutical and homeopathic products. The
Registrant anticipates that its initial products ("Initial Products") will
consist of four exclusive products: (i) a homeopathic formulation designed to
cleanse the liver and kidneys; (ii) an herbal and homeopathic weight management
product based on homeopathic principles; (iii) a high potency shark liver oil
designed to enhance the body's natural immune system; and (iv) a marine
nutri-ceutical containing special anti-oxidants and omega 3 fish oils. The
Registrant is pursuing trademark and tradename registrations regarding possible
tradenames for the Initial Products. This trademark process is not yet
complete.
All of the Registrant's Initial Products consist of proprietary formulations
of homeopathic and/or marine products and their distribution will be exclusive
to the Registrant. The Registrant and the brokers for the producers of these
product components are currently involved in negotiations to secure the
exclusive rights for the Registrant to the distribution and sale of these
products.
Other Recent Transactions
As of November 1, 1994, the Registrant was indebted to Walter G. Cook (who was
president and a director of the Registrant until November 27, 1998) and a
corporation owned by him in the amount of $678,083 representing an aggregate of
unpaid principal and interest on loans made by Mr. Cook to that date since he
became the principal shareholder of the Registrant in 1975. Such loans bore
interest at rates of 8-10% per annum. During the three year period ended
October 31, 1997, as a result of additional loans made by Mr. Cook to the
Registrant and accrued interest, $778,001 of principal and interest was owed to
Mr. Cook and the aforesaid corporation as of October 31, 1997 (the "Cook
Loans"). The debt of $778,001 accrued interest at the rate of 12% per annum
from October 31, 1997. On October 14, 1998, the Registrant paid down the Cook
Loans by $150,000 and on November 20, 1998, the unpaid principal and interest
on the Cook Loans was $689,039.06.
In connection with the Stock Exchange Agreement, on November 20, 1998, the two
properties owned by the Registrant, consisting of an office building in Hurst,
Texas and 65 undeveloped acres of realty in Forrest Hill, Texas, certain assets
related to the Hurst office building and a $3,000 principal amount note payable
to the Registrant were transferred to Walter G. Cook in satisfaction of the
Cook Loans. In connection therewith, Mr. Cook assumed payment of a $150,000
mortgage loan on the two properties, on which $145,942.91 was owed, and certain
obligations owing on the two properties.
On February 9, 1999, the Registrant completed a loan agreement with seven
private investors (the "Investors") wherein it received $1,000,000 (the
"Loan"). The loan agreement further provides that an additional $500,000 could
be borrowed if management determined that such additional funds were required
for the operation of the business. The $1,000,000 Loan is evidenced by a
promissory note dated February 12, 1999, the date of the first draw under the
Loan Agreement, which note bears interest at 10% per annum. The note matures
on August 31, 2000. The Investors also received Class A Warrants entitling
them to purchase an aggregate of 2,000,000 shares of the Registrant's Common
Stock. The Class A Warrants are exercisable at $.3125 per share and expire
five years from February 9, 1999. Class A Warrants for the purchase of an
aggregate of 351,250 shares of the Issuer's common stock were also issued to
Gerald M. Holland and Damosa Saavedra, who are two individuals who represented
the Investors in the negotiations with the Registrant which Class A Warrants
were those the Investors would have otherwise received. See "Management's
Discussion and Analysis of Financial Condition or Plan of Operation - 1999
Private Financing."
Under the terms of the Stock Exchange Agreement, the Registrant agreed to
issue an additional 1,000,000 shares of the Registrant's Common Stock to Steve
Gould, Robert Bray, Lee Kaplan and Gerald M. Holland (the "Shareholders") if
the consolidated net revenues of the Registrant are at least $8,000,000 for the
twelve (12) month period commencing March 1, 1999 (the "Year 1999 Additional
Shares") and an additional 1,000,000 shares if the consolidated net revenues of
the Registrant are at least $15,000,000 (on a non-cumulative basis) for the
twelve (12) month period commencing March 1, 2000 (the "Year 2000 Additional
Shares"). The Loan Agreement provides that in the event that the Shareholders
shall be entitled to receive the Year 1999 Additional Shares, Class B Warrants
for the purchase of an aggregate of 427,500 additional shares of the
Registrant's Common Stock shall be issued to Gerald M. Holland and Damosa
Saavedra. The Class B Warrants are exercisable at $.3125 per share and expire
five years from March 1, 2000. In the event that the Shareholders shall be
entitled to receive the Year 2000 Additional Shares, Class C Warrants for the
purchase of an aggregate of 427,500 additional shares of the Registrant's
Common Stock shall be issued to Gerald M. Holland and Damosa Saavedra. The
Class C Warrants are exercisable at $.3125 per share and expire five years from
March 1, 2001.
On October 1, 1998, prior to the Registrant's acquisition of Encore
International, Inc., Encore executed and delivered promissory notes in the
amount of $56,000 each to Steve Gould and Lee Kaplan to evidence its debt for
funds advanced to initiate the business of Encore. Such notes bore interest at
the rate of 6% per annum and were to mature on September 30, 1999. Under the
terms of the Loan Agreement with the Investors, both Messrs. Gould and Kaplan
agreed to accept replacement notes which provide that no payment of interest or
principal on such replacement notes may be made to them unless all payments of
principal and interest due at that time on the promissory note delivered to the
Investors shall have been made. The replacement notes delivered by the
Registrant to Messrs. Gould and Kaplan bear interest at a rate of 10% per annum
and mature August 31, 2000. In consideration for their accepting the
replacement notes, Messrs. Gould and Kaplan have each received Class A Warrants
to purchase 112,000 shares of Registrant's Common Stock. Such Class A Warrants
are on the same terms and conditions as the Class A Warrants issued to the
Investors pursuant to the Loan Agreement. See "Management's Discussion and
Analysis of Financial Condition or Plan of Operation - 1999 Private Financing."
Item 2. PROPERTIES.
Reference is made to Item 1 of this Annual Report on Form 10-KSB for
information concerning the properties of the Registrant.
Item 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending against the Registrant or any
of its subsidiaries.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
Market Information
The principal United States market in which the Registrant's Common Stock has
been traded in the past is the over-the-counter market. The Registrant has
been advised by the National Quotation Bureau, LLC that during the fiscal year
ended October 31, 1998, there were no bid or offer quotations for Registrant's
Common Stock in the Pink Sheets published by it.
Security Holders
The approximate number of holders of record of the Registrant's Common stock as
of October 31, 1998 was 232.
Dividends
The payment of dividends, if any, in the future will be at the discretion of
the Registrant's Board of Directors and will depend, among other things, upon
the Registrant's earnings, its capital requirements and its financial
condition. The Registrant has not paid dividends since its inception and has
no intention of doing so in the near future.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN
OF OPERATION.
This Annual Report on Form 10-KSB contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Registrant's actual results to
differ materially from those indicated by such forward-looking statements. See
"Certain Factors Which May Affect Future Results."
During the fiscal year ended October 31, 1998, all of Registrant's revenues
were from the rentals derived from the operation of the Hurst, Texas office
building. The revenues from the Hurst, Texas office building were only
sufficient to pay the expenses and mortgage debt service related to that
building, which mortgage debt was paid off April 1, 1998. All other funding
requirements of the Registrant were provided by advances made to it by Walter
G. Cook, its then principal shareholder. Other than the payment to be made to
Walter Cook out of the proceeds of a $150,000 mortgage loan secured by the two
properties which Registrant hopes to secure, the Registrant has been unable to
make payments of interest or principal on its debt to Mr. Cook. Since the
Registrant suffered continuing losses from its operations, unless the
Registrant had been able to sell off its real estate holdings or find another
source of capital, it would not have been able to pay its debt to Mr. Cook or
to acquire other properties or assets to produce revenues.
Management of the Registrant had for the past three years been engaged in a
search for an acquisition that would add a viable business to Registrant so as
to place it in a position to be able to continue as a going concern. Taking
that need into consideration, Registrant entered into the Stock Exchange
Agreement with Encore and its shareholders as described in Item 1 to this
Report. Although Encore has yet to commence its business activities, effective
February 9, 1999, it entered into a loan agreement to provide it with
$1,000,000 in operating capital and it anticipates that such financing will
allow it start its business activities in the near future.
After consummation of the Stock Exchange Agreement with Encore and Encore's
subsequent merger with VisionQuest Worldwide, Inc., the Registrant intends to
initiate and operate its marketing program (the "VisionQuest Marketing
Program") though a national network of distributors. The VisionQuest Marketing
Program has been developed by the officers of the Registrant who believe that
the program illustrates a comprehensive understanding of the network marketing
industry. The Registrant intends to align its product line with future health
and business trends, as those trends are identified through research and other
means.
The three principal founding members of the business of VisionQuest are Steve
Gould, Lee Kaplan and Robert Bray, who are the Registrant's current officers
and directors.
Initial Products
The natural health and nutritional supplement industry is a $30 billion plus a
year business. The Registrant, through VisionQuest, intends to target the
market pool identified as "baby boomers" and provide access for those
individuals to innovative, effective and high demand life-enhancing products.
The VisionQuest product line will be composed of historically proven,
life-enhancing health remedies as well as new health discoveries from around
the world including a variety of breakthrough products derived from the sea.
Through high potency nutri-ceutical products and formulations developed using
sound principles and time proven therapies such as homeopathy and Chinese and
ayurvedic medicine, the VisionQuest product line is designed to promote
consumer confidence and results. These proprietary products will be sold
person to person or through convenient and automatic delivery to the customer's
home.
The VisionQuest product philosophy will be based on a three pronged approach
to achieving optimum health: (i) cleanse the body of toxins, (ii) boost the
body's immune system, and (iii) provide the body with comprehensive
protection.
VisionQuest is engaged in negotiations with a well-known alternative health
care physician who is a specialist in homeopathic formulations in America.
Through this alliance, VisionQuest will secure his exclusive endorsement of the
products. The products have been formulated according to strict standards for
quality and performance, and then electro-magnetically balanced to assure the
formulas to be toxin free and effective.
VisionQuest anticipates that its initial products ("Initial Products") will
consist of four exclusive products: (i) a homeopathic formulation designed to
cleanse the liver and kidneys; (ii) an herbal and homeopathic weight management
product based on homeopathic principles; (iii) a high potency shark liver oil
designed to enhance the body's natural immune system; and (iv) a marine
nutri-ceutical formulation containing special anti-oxidants and omega 3 fish
oils.
All of the Initial Products consist of proprietary formulations of homeopathic
and/or marine products and their distribution will be exclusive to VisionQuest.
VisionQuest and the brokers of these product components are currently involved
in negotiations to secure the exclusive rights to the distribution and sale of
these products for VisionQuest. Additionally, VisionQuest is pursuing
trademark and tradename registrations regarding possible tradenames for the
Initial Products. This trademark process is not yet complete. VisionQuest has
entered into an agreement with Marine Biologics, Inc., which is a broker for
third party suppliers of the components of VisionQuest's Initial Products,
whereby VisionQuest will have exclusive distribution rights for its products.
This contract is for a term of five years and automatically renews for an
additional term at the end of five years, provided that neither party provides
written notification of its intention not to renew.
VisionQuest has been actively working with a physician who is nationally
recognized in the field of bariatric medicine to test and endorse a
state-of-the-science weight loss regimen that the physician formulated. Initial
results appear to be positive. It is anticipated that this weight management
program will be combined with behavior modification to offer a safe and
effective breakthrough in this area.
VisionQuest also will market a high potency shark liver oil believed to boost
the immune system and thereby help to enhance the body's defenses or immune
system. The shark liver oil will be combined with a marine nutri-ceutical
which is made from marine plants contains special anti- oxidants and omega 3
fish oils which are reputed to nourish the body.
The Initial Products will be periodically and strategically followed with a
variety of additional homeopathic and nutri-ceutical products which will
compliment the VisionQuest marketing program.
VisionQuest Marketing Program
VisionQuest intends to market its products through a network of independent
contractors it will call "Members." These Members will purchase the product
directly from VisionQuest and then resell the product to end-users, making a
retail profit. In addition, through a comprehensive, state- of-the-art
"multi-level" commission structure, Members will have the opportunity to earn
bonuses on their member organization which they build at their own pace. The
Members will be supported through an array of marketing and training tools
provided by the Registrant.
In the effort to quickly establish its membership network, VisionQuest has
gathered commitments from a significant number of key independently contracted
sales people with backgrounds in network marketing and business operation.
VisionQuest intends, through utilization of these independent contractors, to
recruit many more distributors into the network in a relatively short amount of
time.
1999 Private Financing
The Registrant estimated that it required between $1,000,000 to $1,500,000 in
funding to establish the new line of business. Effective February 9, 1999, the
Registrant entered into a Loan Agreement with seven individual investors (the
"Investors"), pursuant to which the Investors agreed to lend $1,000,000 (the
"Loan") to the Registrant. The loan proceeds have been placed into an escrow
account which the Registrant may access for advances through application to a
Disbursement Agent. The Disbursement Agent, Gerald M. Holland, is a
shareholder of the Registrant and one of the Investors. In return for their
agreement to loan funds to the Registrant, the Investors received a promissory
note for $1,000,000 plus Class A Warrants for the purchase of an aggregate of
2,000,000 shares of the Registrant's common stock. The promissory note bears
interest at the rate of 10% per annum and matures on August 31, 2000. The
Class A Warrants have an exercise price of $.3125 per share and expire on
February 8, 2004. The Investors also agreed to loan, on a pro rata basis, an
additional $500,000 over and above the $1,000,000 original loan if additional
funds are required by the Registrant for purchase of product. If the
additional loan is made, the Investors will receive additional Class A Warrants
on a pro rata basis for the additional funds loaned. Class A Warrants for the
purchase of an aggregate of 351,250 shares of the Registrant's common stock
were also issued to Gerald M. Holland and Damaso W. Saavedro, two individuals
who represented the Investors in the negotiations with the Registrant, which
were Warrants those Investors would have otherwise received. As additional
collateral for the Loan, Steve Gould, Lee Kaplan, Robert Bray and Gerald
Holland executed a Non-Recourse Pledge Agreement and an Irrevocable Proxy in
favor of the Investors. The Pledge Agreement provides that Messrs. Gould,
Kaplan, Bray and Holland pledge as collateral security for payment of the Loan
an aggregate of 4,978,264 shares of the Registrant's Common Stock which they
hold to the Investors. The Investors at any time prior to repayment of the
initial loan and/or the additional loan may use the Irrevocable Proxy to vote
on major decisions presented to the Registrant's shareholders, provided
however, that the Proxy may not be used by the Investors to vote to remove any
director or officer from the Registrant for reasons other than gross
negligence, theft, or legal incompetency. Further, the Investors may not vote
to elect any person as a director of the Registrant other than those persons
currently holding that position. The Proxy terminates upon repayment of the
initial loan and/or the additional loan to the Investors.
In connection with the Loan, the Registrant also granted to the Investors a
Master Distributorship directly below the Master Distributorship granted to Lee
Kaplan (see Item 10 - Executive Compensation for a description of Mr. Kaplan's
Master Distributorship). The Master Distributorship granted to the Investors
shall be operated in accordance with the policies of VisionQuest Worldwide,
Inc., the subsidiary of the Registrant, and is entitled to receive compensation
in accordance with VisionQuest's Distributor Compensation Plan, commissions and
bonuses on down-line sales activity. The Investors shall receive 80% of the
commissions earned by the Master Distributorship and 10% of such commissions
shall be paid to each of Messrs. Holland and Saavedra. Payment of the
commission earned by the Master Distributorship will be made monthly by the
Registrant and will be included in the Company's regular monthly bonus run as
to its Distributors and/or Members.
On October 1, 1998, prior to the Registrant's acquisition of Encore
International, Inc., Encore executed and delivered promissory notes in the
amount of $56,000 each to Steve Gould and Lee Kaplan in payment for funds
advanced by them to initiate the business of Encore. Such notes bore interest
at the rate of 6% per annum and matured on September 30, 1999. In connection
with the Registrant's 1999 private financing, both Messrs. Gould and Kaplan
agreed to accept replacement notes which provided that no payment of interest
or principal may be made to them until such time as all payments of principal
and interest due on the promissory notes delivered to the Investors shall have
been made. The replacement notes delivered by the Registrant to Messrs. Gould
and Kaplan bear interest at a rate of 10% per annum and mature August 31, 2000.
In addition to the replacement notes, Messrs. Gould and Kaplan will each
receive Class A Warrants to purchase 112,000 shares of Registrant's Common
Stock. Such Class A Warrants are on the same terms and conditions as the Class
A Warrants issued to the Investors in the 1999 Private Financing.
Use of Proceeds of 1999 Private Financing
The majority of the proceeds of the 1999 private financing will be utilized
for operating capital during VisionQuest's pre-launch phase. The funding will
provide for payroll, deposits for software development, communications
equipment, lease and cash payments on furniture as well as office and computer
related equipment. Large deposits and payments are due on product inventory
and marketing materials. The total expenses for this period will exceed
$874,000.
During the first three months of operation, the Registrant will utilize the
loan proceeds for the cost of day to day business until such time as
VisionQuest's operations are expected to earn a profit. Additionally, capital
is required to cover aggressive product and marketing material purchases,
particularly if the growth of the distributor force should exceed projections.
The Registrant intends to pursue a moderately aggressive approach to building
inventory during the first six months, while maintaining some funds in reserve
so that it can support the needs of the Registrant's Members in a timely
manner.
Certain Factors Which May Affect Future Results
The Registrant may be considered a development stage company because of its
entry into a new line of business and there is a significant risk that the
Registrant may not be able to obtain the volume of business necessary to become
a going concern. The Registrant believes that the VisionQuest business plan
provides a comprehensive approach in assembling all the essential parts that
will make up a successful network marketing company; however, there can be no
assurance that the Registrant will be able to generate revenues or achieve
profitable operations.
The Registrant's capital requirements in connection with its VisionQuest
development activities have been and will continue to be significant. To date,
it has been dependent upon the proceeds of sales of its securities to private
investors to fund its development activities. The Registrant anticipates that
its available cash will be sufficient to satisfy its contemplated cash
requirements for at least the next 12 months. After such time, the completion
of the Registrant's development activities relating to its products and the
commencement of marketing activities in connection with such products will
require continued funding. The Registrant has no current arrangements other
than those described above with respect to sources of additional financing and
there is no assurance that other additional financing will be available to the
Registrant in the future on commercially reasonable terms, or at all. The
inability to obtain additional financing, when needed, would have a material
adverse effect on the Registrant, including possibly requiring the Registrant
to curtail or cease operations. To the extent that any future financing
involves the sale of the Registrant's equity securities, the Registrant's then
existing stockholders could be substantially diluted.
The Registrant does not contemplate that it will directly manufacture any of
its products. It intends to contract with third parties to manufacture its
products. Although management believes it will be able to negotiate
satisfactory manufacturing and supply agreements, the failure to do so would
have a material adverse effect on the Registrant. Furthermore, there can be no
assurance that such manufacturers will dedicate sufficient production capacity
to satisfy the Registrant's requirements within scheduled delivery times or at
all. Failure or delay by the Registrant's suppliers in fulfilling its
anticipated needs would adversely affect the Registrant's ability to develop
and market its products. While management believes that it has or will be
making satisfactory arrangement for supply of its products it anticipates that
the Registrant will obtain certain of them from a single source, or limited
number of sources, of supply. In the event that certain of such suppliers are
unable or unwilling to provide the Registrant with the products on commercially
reasonable terms, or at all, delays in securing alternative sources of supply
would result and could have a material adverse effect on the Registrant's
operations.
The markets that the Registrant intends to enter are characterized by intense
competition. The Registrant's products will directly compete with similar
products of numerous well- established companies. Certain of the competitors
dominate their industries and have the necessary financial resources to enable
them to withstand substantial price competition or downturns in the market for
the products, which the Registrant may not be able to withstand.
Item 7. FINANCIAL STATEMENTS.
The financial statements and supplementary data are indexed in Item 13 hereof.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
During the fiscal year ended October 31, 1998, the Registrant had no changes
in or disagreements with its independent auditing firm. However, subsequent to
the end of its fiscal year, it dismissed its previous firm of Spillar, Mitcham,
Eaton & Bicknell, L.L.P. ("Spillar"), the independent accounting firm which
audited the financial statements of the Registrant during fiscal year 1997.
Spillar's report on the Registrant's financial statements included in the
Annual Report on Form 10-K for the three year period ended October 31, 1997 did
not contain an adverse opinion or a disclaimer of opinion, and, except as to
the ability of the Registrant to continue as a going concern, was neither
qualified nor modified as to uncertainty, audit scope, or accounting
principles. The Registrant engaged Buchbinder Tunick & Registrant, L.L.P. as
its new independent accountants. The decision to change accountants was
approved by the Board of Directors of the Registrant on January 15, 1999. The
Registrant reported this change of independent auditors in its Current Report
on Form 8-K filed with the Securities and Exchange Commission on January 26,
1999.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following information is provided with respect to each director and
officer of the Registrant as of October 31, 1998:
Name Age Position
Walter G. Cook 71 President, Chief Executive and Financial
Officer and Director
Peggy Janes 49 Secretary-Treasurer and Director
Walter G. Cook was President of the Registrant from 1989 to November 27, 1998
and a Director and officer of the Registrant from 1975 to November 27, 1998.
Mr. Cook has been a practicing attorney in Fort Worth, Texas since 1952.
Peggy Janes was Secretary-Treasurer of the Registrant from March 1, 1989 to
November 27, 1998 and a director from September 1984 to November 27, 1998. Ms.
Janes has been employed by Walter G. Cook as an administrative assistant for
more than 23 years.
The persons who became directors and executive officers of the Registrant as
of November 27, 1998 are as follows:
Name Age Position
Steve Gould 38 President, Chief Executive Officer
and a director
Lee Kaplan 46 Chairman of the Board of Directors,
Vice-President and a director
Robert Bray 49 Secretary and a director
Steve Gould has been President, Chief Executive Officer and a director of the
Registrant since November 27, 1998. From December 1991 to July 1998, he was
President and Chief Executive Officer of Equinox International, a marketing
company selling a wide variety of health related products.
Lee Kaplan has been Chairman of the Board of Directors, Vice President and a
director of the Registrant since November 27, 1998. For the past 20 years, Mr.
Kaplan has been self-employed as a marketing consultant.
Robert Bray has been Secretary and a director of the Registrant since November
27, 1998. He has served as President of Covenant Brothers, a retail clothing
company, from January 1982 to the present and has also been employed as an
Executive Distributor for NuSkin International, a retailer of nutritional
products, from April 1993 to the present.
Pursuant to the provisions of the Registrant's Bylaws, the Registrant's
current directors and executive officers hold office until his or her successor
is elected or appointed and qualified, or until his or her death, resignation
or removal by the Board of Directors.
The term of each director will expire at the next Annual Meeting of
Stockholders and when their respective successors have been elected and
qualified. Officers serve at the pleasure of the Board of Directors.
Pursuant to the terms of the Loan Agreement, the Investors are entitled to
designate two individuals to be elected to the Registrant's Board of Directors.
They have designated Gerald Holland and Jules Ross, both of whom are Investors.
Such persons will be elected to the Board at the next meeting of the Board.
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Registrant's officers and directors and persons who own more than 10% of
registered class of the Registrant's equity securities ("Reporting Persons") to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Reporting Persons are required by Securities and Exchange
Commission regulations to furnish the Registrant with copies of all Section
16(a) reports they file.
Based solely on its review of copies of such forms received by the Registrant
and representations from certain Reporting Persons, the Registrant believes
that during the fiscal year ended October 31, 1998, its Reporting Persons,
consisting of the officers and directors listed above in this Item 9 and the
persons owning more than 10% of the outstanding Common Stock listed in Item 11
of this Report, complied with all filing requirements applicable to them.
Item 10. EXECUTIVE COMPENSATION
No compensation was paid or accrued for the benefit of any executive officer of
the Registrant during the fiscal year ended October 31, 1998.
Employment and Distributorship Agreements
Encore (now VisionQuest) and Steve Gould have entered into a five-year
employment agreement commencing October 15, 1998, which provides that Mr. Gould
shall receive an initial salary of $200,000 annually with a guaranteed annual
increase of not less than 10% and a bonus of 1% of the gross sales revenue as
computed on a monthly basis. Thus, Mr. Gould's aggregate annual income is
based on the revenue level he is able to attain for the Registrant.
Neither Mr. Kaplan nor Mr. Bray will receive a salary from the Registrant.
VisionQuest has granted a Master Distributorship to a group of eight investors,
which group includes Messrs. Kaplan and Bray, who advanced funds to Encore
prior to its acquisition by the Registrant. The Master Distributorship is the
sole distributorship granted directly from the Registrant and is the first (or
highest) tier of distributorship in the VisionQuest Marketing Program. All
distributorships held by individual Members branch from the Master
Distributorship. In accordance with the Registrant's Marketing Compensation
Plan, the Master Distributorship will receive a portion of the sales effected
by all Members holding Distributorships beneath it in the tier of organization.
Of the revenues generated under the Master Distributorship, Mr. Kaplan will
receive 55% and Mr. Bray will receive 10%. The remaining 35% of generated
revenues will be paid, on a pro rata basis, to the remaining six investors who
loaned funds to Encore prior to its acquisition by the Registrant.
VisionQuest has also granted a Distributorship to Steve Gould, which
distributorship is one of several second-tier distributorships and, as such,
branches directly off of Mr. Kaplan's Master Distributorship. Mr. Gould will
receive a portion of the sales effected by all Members holding distributorships
beneath his in the tier of organization.
The amount of revenues received under the various Distributorship agreements
will be paid in accordance with the Registrant's Marketing Compensation Plan,
which is being developed by management. Since the Marketing Compensation Plan
is not finalized, the Registrant is unable at this time to project the exact
amount of revenues which will be received by Messrs, Gould, Kaplan and Bray
under the Distributorships
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares, based on information
obtained from the persons named below, of the Common Stock of the Registrant
beneficially owned as of November 30, 1998 by (i) owners of more than 5% of the
Registrant's Common Stock, (ii) each director of the Registrant and (iii) all
officers and directors of the Registrant as a Group:
Name and Address (1) Number of Shares Percentage Owned (3)
Owned(2)
Steve Gould(4)(5) 2,090,382 30.4%
Lee Kaplan(5) 2,090,382 30.4%
Robert Bray(5) 550,000 8.0%
Walter G. Cook(6) 541,978(7) 7.9%
Nancy M. Cook(6) 541,978(8) 7.9%
All officers and
directors as a
Group (3 persons) 4,730,764 68.8%
(1) Unless otherwise noted, the address of each of the persons listed above is
care of the Registrant.
(2) Unless otherwise noted, the Registrant believes that all persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(3) Based upon 6,873,860 shares of Common Stock outstanding as of November 27,
1998. This amount does not include any shares issuable upon the exercise of
the Class A Warrants issued as a result of the 1999 Private Financing.
(4) Owned of record by Fat Cat, LLC, of which Steve Gould is the owner of all
of its equity. In connection with Mr. Gould entering into an Employment
Agreement with Encore, Mr. Kaplan sold to Mr. Gould 50% of his holdings of the
Common Stock of Encore (the "Shares") at a purchase price equal to the price
Mr. Kaplan paid to purchase the Shares. In the event of a material breach by
Mr. Gould of his Employment Agreement with Encore before October 15, 1999, Mr.
Gould has agreed that he will sell and Mr. Kaplan will be required to
repurchase all of the Shares (represented by Continental stock after the
completion of the Stock Exchange Agreement) from Mr. Gould for the price paid
for the Shares.
(5) As a condition of the Loan Agreement entered into by the Registrant and
seven private individuals (the "Investors") effective February 9, 1999, Steve
Gould, Lee Kaplan, Robert Bray and Gerald M. Holland executed a Non-Recourse
Pledge Agreement and an Irrevocable Proxy in favor of the Investors. The
Pledge Agreement provides that Messrs. Gould, Kaplan, Bray and Holland shall
pledge an aggregate of 4,978,264 shares of the Registrant's Common Stock which
they hold to the Investors as collateral security for repayment of the loans
made or to be made under the Loan Agreement with the Investors. Further, Class
A Warrants for the purchase of 112,000 shares of the Registrant's Common Stock
issued to each of Messrs. Gould and Kaplan will be pledged. In addition, the
Investors at any time prior to repayment of the initial loan and/or the
additional loan may use the Irrevocable Proxy to vote on major decisions
presented to the Registrant's shareholders, provided however, that the Proxy
may not be used by the Investors to vote to remove any director or officer from
the Registrant for reasons other than gross negligence, theft, or legal
incompetency. Further, the Investors may not vote to elect any person as a
director of the Registrant other than those persons currently holding that
position. The Proxy terminates upon repayment of the initial loan and/or the
additional loan to the investors.
See Management's Discussion and Analysis of Financial Condition and Plan of
Operation - 1999 Private Financing.
(7) The address is 1020 Macon Street, Fort Worth, Texas 76102.
(8) Includes 305,239 shares of Common Stock owned by Nancy Cook, Walter G.
Cook's wife. Mr. Cook disclaims any beneficial ownership of the shares owned by
his wife.
(9) Includes 235,739 shares of Common Stock owned by Walter G. Cook. Nancy
Cook disclaims beneficial ownership of the shares held by her husband, Walter
G. Cook.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since November 1, 1996, no director or executive officer of the Registrant,
any nominee to election as a director, or any person know to the Registrant to
own of record or beneficially more than 5% of the Registrant's Common Stock or
any member of the immediate family of any of the foregoing persons had, or will
have, any direct or material interest in any transaction or series of similar
transactions to which the Registrant or any of its subsidiaries, was or is to
be a party, in which the amount involved exceeds $60,000, except as follows:
As of November 1, 1994, the Registrant was indebted to Walter G. Cook and a
corporation owned by him in the amount of $678,083 representing an aggregate of
unpaid principal and interest on loans made by Mr. Cook since he became the
principal shareholder of the Registrant in 1975. Such loans bore interest at
rates of 8-10% per annum. During the three year period ended October 31, 1997,
as a result of additional loans made by Mr. Cook to the Registrant and accrued
interest, $778,001 of principal and interest was owed to Mr. Cook and the
aforesaid corporation as of October 31, 1997 (the "Cook Loans"). The debt of
$778,001 bears interest at the rate of 12% per annum. On October 14, 1998, the
Registrant paid down the Cook Loans by $150,000.
Under the terms of the Stock Exchange Agreement, the two properties owned by
the Registrant, consisting of an office building in Hurst, Texas and 65
undeveloped acres of realty in Forrest Hill, Texas, certain assets related to
the Hurst office building and a $3,000 note payable to the Registrant were
transferred to Walter G. Cook in satisfaction of the Cook Loans. The
satisfaction of the Cook Loans upon the terms set forth in the preceding
sentence took place on November 20, 1998. In connection therewith, Mr. Cook
assumed payment of a $150,000 mortgage loan on the two properties.
On October 1, 1998, prior to the Registrant's acquisition of Encore
International, Inc., Encore executed and delivered promissory notes in the
amount of $56,000 each to Steve Gould and Lee Kaplan in payment for funds
advanced by them to initiate the business of Encore. Such notes bore interest
at the rate of 6% per annum and matured on September 30, 1999. In connection
with the Registrant's 1999 private financing, both Messrs. Gould and Kaplan
agreed to accept replacement notes which provide that no payment of interest or
principal may be made to them unless at such time all payments of principal and
interest then due on the promissory note delivered to the Investors shall have
been made. The replacement notes delivered by the Registrant to Messrs. Gould
and Kaplan bear interest at a rate of 10% per annum and mature August 31, 2000.
In consideration of their agreeing to accept the replacement notes, Messrs.
Gould and Kaplan each received Class A Warrants to purchase 112,000 shares of
Registrant's Common Stock. Such Class A Warrants are on the same terms and
conditions as the Class A Warrants issued to the Investors in the 1999 Private
Financing. See "Management's Discussion and Analysis of Financial Condition or
Plan of Operation - 1999 Private Financing."
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF
FORM 8-K.
(a) Financial Statements (indexed as F-1 to F-9)
Reports of Independent Certified Public Accountants:
Buchbinder Tunick & Company LLP F-1
Spillar, Mitcham, Eaton & Bicknell, LLP F-2
Consolidated Balance Sheet as of October 31, 1998 F-3
Consolidated Statement of Operations and
Accumulated Deficit for the two years
ended October 31, 1998 F-4
Consolidated Statement of Cash Flows
for the two years ended October 31, 1998 F-5
Notes to Consolidated Financial Statements F-6
(b) Reports on Form 8-K
Form 8-K filed December 8, 1998 regarding the Registrant's acquisition of
Encore International, Inc. ("Encore").
(c) Exhibits (Index)
The following exhibits required to be filed by Item 601 of Regulation S-B are
incorporated by reference or attached to and filed as part of this Annual
Report on Form 10-KSB:
No. Description:
2.1 Plan and Agreement of Merger of Station One West with and into
Registrant dated January 9, 1994*
2.2 Letter of Intent dated August 27, 1998 among the Registrant, Walter G.
Cook, Encore International, Inc. and Lee Kaplan**
3.1 Certificate of Incorporation of Registrant*
3.2 Bylaws of Registrant*
10.1 Promissory Note dated October 31, 1994 of Manhattan National
Properties, Inc. and Continental Heritage Corporation payable to
Walter G. Cook in the amount of $147,433.46*
10.2 Promissory Note of Continental Heritage Corporation dated October 31,
1994 payable to the order of Spanish West Enterprises, Inc. in amount
of $34,027.13*
10.3 Promissory Note of Continental Heritage Corporation dated October 31,
1994 payable to Walter G. Cook in the amount of $227,624.36*
10.4 Promissory Note of National Heritage Corporation and Continental
Heritage Corporation dated October 31, 1994 payable to Walter G. Cook
in the amount of $226,929.81*
10.5 Promissory Note of Apollo Enterprises, Inc. and Continental Heritage
Corporation dated October 31, 1994 payable to Walter G. Cook in the
amount of $41,860.79*
10.6 Promissory Note of Registrant and Apollo Enterprises, Inc., Manhattan
National Properties, Inc. and National Heritage Corporation dated
October 31, 1997 payable to Walter G. Cook in the amount of
$778,001.27. *
10.7 Stock Exchange Agreement dated November 27, 1998 by and among the
Registrant and the shareholders of Encore***
10.8 Employment Agreement between Steve Gould and Encore International,
Inc. dated as of October 15, 1998.
10.9 Loan Agreement dated February 9, 1999
10.10 Form of $1,000,000 Promissory Note delivered to the Investors
10.11 Form of Class A Warrant
10.12 Form of Class B Warrant
10.13 Form of Class C Warrant
10.14 Non-Recourse Pledge Agreement
10.15 Irrevocable Proxy
10.16 Subordinated Promissory Note from Registrant in favor of Steve Gould
10.17 Subordinated Promissory Note from Registrant in favor of Lee Kaplan
21. List of Subsidiaries
- ------------------------
* Incorporated by reference to the Exhibit bearing the same number in
Registrant's Annual Report on Form 10-K for the fiscal year ended October 31,
1994.
**Incorporated by reference to the Exhibit to Registrant's Quarterly
Report on Form 10-Q dated September 11, 1998 and filed on September 14, 1998.
*** Incorporated by reference to Exhibit 99.1 to Registrant's Current Report on
Form 8-K filed with the Commission on December 8, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchanges
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 12, 1999. CONTINENTAL HERITAGE CORPORATION
BY: /s/Steve Gould
Steve Gould, President,
Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 12, 1999. /s/Steve Gould
.
Steve Gould, President,
Chief Executive Officer,
Chief Financial Officer
and Director
Dated: March 12, 1999. /s/ Lee Kaplan
. Lee Kaplan, Vice President
and Chairman of the
Board of Directors
Dated: March 12, 1999. /s/Robert Bray
. Robert Bray, Secretary and
Director
INDEX TO FINANCIAL STATEMENTS
Page
Reports of Independent Certified Public Accountants:
Buchbinder Tunick & Company LLP F-1
Spillar, Mitcham, Eaton & Bicknell, LLP F-2
Consolidated Balance Sheet as of October 31, 1998 F-3
Consolidated Statement of Operations and Accumulated Deficit
for the two years ended October 31, 1998 F-4
Consolidated Statement of Cash Flows
for the two years ended October 31, 1998 F-5
Notes to Consolidated Financial Statements F-6
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Continental Heritage Corporation
We have audited the accompanying consolidated balance sheet of Continental
Heritage Corporation and subsidiaries as of October 31, 1998, and the related
consolidated statements of operations and accumulated deficit and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Continental
Heritage Corporation and subsidiaries as of October 31, 1998 and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
BUCHBINDER TUNICK & COMPANY LLP
Boca Raton, Florida
January 22, 1999
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Continental Heritage Corporation
We have audited the accompanying consolidated statements of operations and
accumulated deficit and cash flows of Continental Heritage Corporation and
subsidiaries for the year ended October 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Continental Heritage Corporation and subsidiaries as of October 31,
1997 in conformity with generally accepted accounting principles.
SPILLAR, MITCHAM EATON & BICKNELL LLP
Fort Worth, Texas
June 10, 1998
CONTINENTAL HERITAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
October 31, 1998
ASSETS
Current assets:
Cash $ 40,593
Prepaid expenses 3,883
Future tax benefits 31,000
Note receivable 2,613
------
Total current assets 78,089
Property assets, at cost less
Accumulated depreciation of $211,330 415,084
Other assets - raw land and development costs 260,917
--------
Total assets $ 754,090
=======
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 37,646
Note payable 20,000
Current portion of long-term debt 60,000
Security deposits 5,630
------
Total current liabilities 123,276
Long-term debt 784,033
Stockholders' deficiency:
Common stock - par value $.10;
10,000,000 shares authorized;
1,373,860 shares issued and outstanding 137,386
Additional paid-in capital 468,425
Accumulated deficit (759,030)
-------
Total stockholders' deficiency (153,219)
Total liabilities and stockholders' deficiency $ 754,090
=======
See notes to consolidated financial statements.
CONTINENTAL HERITAGE CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations and Accumulated Deficit
For the years ended October 31, 1998 and 1997
1998 1997
Rental income $ 220,870 $ 184,367
------- -------
Costs and expenses:
Building and operating costs 147,995 106,062
Interest 91,680 34,122
Depreciation 25,642 25,132
General and administrative 45,428 5,795
------- -------
Total costs and expenses 310,745 171,111
(89,875) 13,256
Other income (expenses):
Loss on sale of undeveloped land (7,920) -
Interest income 1,842 -
----- ------
Total other income (expense) (6,078) -
----- ------
Income (loss) before provision for
federal income taxes (95,953) 13,256
Provision (credit) for federal income taxes (6,800) 5,379
------ ------
Net income (loss) (89,153) 7,877
Accumulated deficit, beginning of year (669,877) (677,754)
Accumulated deficit, end of year $ (759,030) $(669,877)
------- -------
Net income (loss) per common share $ (.06) $ .01
---------- ----------
Weighted average number of
common shares outstanding 1,373,860 1,373,860
--------- ---------
See notes to consolidated financial statements.
CONTINENTAL HERITAGE CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the years ended October 31, 1998 and 1997
1998 1997
Operating activities:
Net income (loss) $ (89,153) $ 7,877
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 25,642 25,132
Loss on sale of undeveloped land 7,920 -
(Increase) decrease in deferred tax asset (6,800) 5,379
Increase (decrease) in accrued interest
due to stockholder (87,145) 29,045
Increase (decrease) in accounts payable 24,451 (1,218)
Other (12,214) (371)
------ -----
Net cash provided by (used in)
operating activities (137,299) 65,844
------- ------
Investing activities:
Purchase of property assets (1,616) (4,075)
Sale of undeveloped land 3,000 -
----- -----
Net cash provided by (used in)
investing activities 1,384 (4,075)
----- -----
Financing activities:
Proceeds from borrowings 170,000 3,370
Repayment of debt (29,800) (46,918)
------- ------
Net cash provided by (used in)
financing activities 140,200 (43,548)
------- ------
Increase in cash 4,285 18,221
Cash, beginning of year 36,308 18,087
------ ------
Cash, end of year $ 40,593 $ 36,308
====== ======
Supplementary cash flow disclosure:
Interest paid $ 177,000 $ 5,076
======= =====
See notes to consolidated financial statements.
CONTINENTAL HERITAGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
Note 1 - Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Material intercompany items and transactions
have been eliminated in consolidation.
The Company is engaged in the business of operating and developing real estate.
In 1998 and 1997, approximately 65% and 70%, respectively, of the Company's
rental income was derived from one tenant, the State of Texas. Reference is
made to Note 7 elsewhere herein for information about transactions effected
subsequent to October 31, 1998 that result in a change in the nature of the
Company's business.
Property Assets
Property assets are recorded at cost. Depreciation expense is calculated by
the straight-line method over the estimated useful lives of the assets which
approximate 20 years for buildings and improvements and 6 years for furniture
and fixtures. The cost of improvements and betterments is capitalized, while
maintenance and repairs are charged to operations as incurred.
Raw Land
The Company's investment in undeveloped land is stated at cost plus
expenditures for interest and property taxes, which are capitalized.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 - Property Assets
At October 31, 1998, property assets are summarized as follows:
Land $ 115,920
Buildings and improvements 506,223
Furniture and fixtures 4,271
-------
626,414
Accumulated depreciation 211,330
$ 415,084
=======
Note 3 - Note Payable
A note payable to Encore International, Inc. (Note 7) matures in October, 1999,
and bears interest at 8% per annum.
Note 4 - Long-Term Debt
At October 31, 1998, long-term debt consists of the following:
Note payable - bank (a) $ 150,000
Loans payable - stockholder (b) 694,033
-------
844,033
Portion due within one year 60,000
-------
$ 784,033
=======
(a) Due in monthly installments of $5,000 each, with interest at 7.3%. The
interest rate will be adjusted on April 15, 1999 to a rate equal to the then
prime lending rate, plus 1%. The note is collateralized by real estate.
(b) From time-to-time, the Company's principal stockholder has advanced money
to it. The notes are due on demand or, if no demand, within three years of the
date made, bear interest at 12% per annum, and are unsecured. Included in the
indebtedness is accrued but unpaid interest aggregating approximately $283,000.
See Note 7 for information about the satisfaction of this obligation by the
transfer of the Company's operating assets to and the assumption of
substantially all related liabilities by the principal stockholder on November
20, 1998.
Note 5 - Related Party Transactions
The Company rents office space from its principal stockholder on a
month-to-month basis. Such rental expense amounted to $3,270 in both 1998
and 1997.
Note 6 - Income Taxes
The Company reports income for federal income tax purposes on a calendar year
basis. At October 31, 1998, it had net operating loss carryforwards of
approximately $346,000 available to it for application against future taxable
income. Such carryforward is exclusive of accrued but unpaid interest expense
aggregating approximately $149,000, which would become deductible when paid.
The carryforwards begin to expire in 2003. However, substantially all such
carryforwards will no longer be available to the Company as a result of
transactions effected in November, 1998, which result in a change in the nature
of its business. See Note 7 for additional information.
The Company has recorded a deferred tax asset to reflect the estimated future
tax benefits of its loss carryforwards. The provision for federal income taxes
reflects a valuation allowance, of $43,000 at October 31, 1998 and $35,914 at
October 31, 1997.
Note 7 - Subsequent Events
In a transaction effected on November 20, 1998, the Company effectively
terminated its previously conducted real estate operations by transferring all
its operating assets and substantially all related liabilities to its principal
stockholder in satisfaction of an indebtedness owing to him. The transaction
resulted in an extraordinary gain of approximately $96,500, net of related
income taxes of approximately $31,000.
On November 27, 1998, the Company and its stockholders entered into a Stock
Exchange Agreement with the shareholders of Encore International, Inc. whereby
the Company acquired the outstanding stock of Encore in exchange for 5,500,000
shares of the Company's common stock with a maximum 2,000,000 additional common
shares issuable to Encore's stockholders in the event certain sales levels are
achieved by the Company on a consolidated basis during the next two years. The
combination will be accounted for as a reverse acquisition.
Encore was organized on December 30, 1997, and has realized no revenues from
operations. It considers itself to be a development stage company and intends
to engage in the wholesale and retail distribution of nutri-ceutical and
homeopathic products.
After giving effect to the foregoing transactions, unaudited pro forma combined
financial position and results of operations as of and for the year ended
October 31, 1998 are summarized as follows:
Balance Sheet - October 31, 1998
Current assets $ 28,000
Property assets 5,000
------
Total assets $ 33,000
Current liabilities $ 297,000
Stockholders' deficiency (264,000)
-------
Total liabilities and stockholders' deficiency $ 33,000
======
Statement of Operations
for the year ended October 31, 1998
Rental income $ 221,000
=======
Loss before extraordinary credit
on settlement of indebtedness $ (297,000)
=======
Net loss (a) $ (201,000)
=======
Per common share (based upon 5,957,193
weighted average shares outstanding):
Loss before extraordinary credit $ (.05)
===
Net loss $ (.03)
===
(a) Includes Encore's net loss of approximately $206,000, consisting solely of
costs incurred during its development stage.
* As stated in Item 5 of this Annual Report on Form 10-KSB, there were no
published quotations in the Pink Sheets for the Registrant's common stock
during the fiscal year of the Registrant ended October 31, 1998. The
Registrant has been advised by the National Quotation Bureau, the publisher of
the Pink Sheets, that there have been no published quotations for such stock
since October 31, 1994. Accordingly, no aggregate market value for the stock
held by non-affiliates can be provided.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 40593
<SECURITIES> 0
<RECEIVABLES> 2613
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78089
<PP&E> 626414
<DEPRECIATION> 211330
<TOTAL-ASSETS> 754090
<CURRENT-LIABILITIES> 123276
<BONDS> 784033
0
0
<COMMON> 137386
<OTHER-SE> 468425
<TOTAL-LIABILITY-AND-EQUITY> 754090
<SALES> 0
<TOTAL-REVENUES> 220870
<CGS> 0
<TOTAL-COSTS> 225143
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91680
<INCOME-PRETAX> (95953)
<INCOME-TAX> (6800)
<INCOME-CONTINUING> (89153)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (89153)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.03)
</TABLE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement, hereinafter referred to as "Agreement," is made and
entered into this 15th day of October 1998, by and between Encore
International, Inc., an Oklahoma corporation (hereinafter referred to as
"Employer"), and Steve Gould (hereinafter referred to as "Employee").
In consideration of the mutual covenants and agreements contained herein,
Employee and Employer agree as follows:
Section One
EMPLOYMENT
Employer hereby employs, engages, and hires Employee as President and Chief
Executive Officer, and Employee hereby accepts and agrees to such hiring,
engagement, and employment, subject to the general supervision and pursuit to
the orders, advice, and direction of the Board of Directors of Employer.
Employee shall perform such duties as are customarily performed by the Chief
Executive Officer of a corporation of similar size and in a like or similar
business to that of the Employer. It is agreed and understood by both parties
that this Agreement is being entered into under the conditions that (1) a
Securities Purchase Agreement is executed between Employee and Lee Kaplan, and
the Employee is issued shares according to said agreement, (2) none of the
terms and conditions of the Securities Purchase Agreement are breached and (3)
upon completion of the acquisition described in Section 3 of the Securities
Purchase Agreement and within ten (10) days thereafter, Encore's headquarters
and b usiness operations be relocated to Las Vegas and the name of the company
be changed to a mutually agreed upon name.
Section Two
BEST EFFORTS OF EMPLOYEE
Employee agrees that he will at all times faithfully, industriously, timely and
to the best of his ability, experience, and talents, perform all of the duties
that may be required of him pursuant to the express and implicit terms hereof
to the reasonable satisfaction of Employer in accordance with the standard
operating procedures of the Employer. Such duties shall be rendered at the
office of Employer, and at such other places as the interest or needs of the
employer shall require. Employee shall at all times conduct himself in the
performance of his duties in a manner not to bring discredit or embarrassment
to the Employer.
Section Three
TERM OF EMPLOYMENT
The term of this Agreement should be for the period of five (5) years
commencing October 15, 1998, and terminating October 15, 2003. The review and
negotiation of this Agreement shall be conducted by and through the Board of
Directors with the consent of the shareholders of the Employer.
Section Four
COMPENSATION OF EMPLOYEE
a.. Salary. Employer shall pay Employee and Employee shall accept payment for
Employee's services hereunder, minimum compensation at the rate of two hundred
thousand dollars ($200,000.00) per year. Annual raises shall be a minimum of a
ten percent (10%) increase for each year of this Agreement.
b. Other Compensation. During the term of this Agreement Employee shall
receive as additional compensation, one percent (1%) of the Employer's gross
sales revenues. Payment should be made within fifteen (15) days following the
close of the previous business month.
c. Distributorship. Throughout the term of this Agreement the Employee shall
have a distributorship in the multi-level operating entity for which the
Employee is contracted. The distributor relationship shall be maintained in
accordance with the policies and guidelines for all independently contracted
distributors.
d. Travel. Employer acknowledges that the successful operation and management
of its business will require the Employee to travel on behalf of, and for the
benefit of the Employer, and attend seminars, conventions, professional
meetings and meeting with selected individuals in the interest of Employer.
All costs associated with such activities and travel will be covered by
Employer or the Employee shall be reimbursed for any expenses incurred by
Employee. Employer shall provide corporate credit card(s) and provide suitable
executive accommodations, including first-class airfare for Employee.
e. Automobile. Throughout the term of this Agreement, Employee shall be
entitled to a company leased vehicle of like size, quality and luxury as is
currently driven by Employee, or at the discretion of the Employee. Employer
shall lease the existing vehicle from Employee and Employer shall pay for any
and all expenses attributable hereto.
f. Insurance. Employer shall provide payment for group medical and dental
insurance for Employee and his family, to the extent, form, type and amounts
that are established as customary with all of Employer's full-time management
employees.
g. Stock and Profit Incentive Programs. During the entire time this Agreement
is in effect and in addition to the compensation provided in other sections,
Employee shall be entitled to participate in any employee benefit or incentive
program. Such programs will be at the sole discretion of the Board of
Directors.
Section Five
VACATION TIME
Employee shall be entitled to three weeks of vacation for each twelve (12)
month period that Employee is employed by Employer in accordance with the
company employee policy with regard to vacation time.
Section Six
SICK LEAVE
Employee shall be entitled to sick days in accordance with Employer's standard
procedures for full-time employees.
Section Seven
TERMINATION DUE TO DISCONTINUANCE OF BUSINESS OR DEATH
In the event Employer shall discontinue operating its business, this Agreement
shall terminate as of the last day of the month on which Employer ceases
operations. This Agreement shall also immediately terminate on the last day of
the month following the death of Employee or total disability of Employee for
more than ninety (90) days.
Section Eight
AGREEMENT MODIFICATION
No waiver or modification of this Agreement or of any covenant, condition, or
limitation contained herein shall be valid unless it is in writing and duly
executed by the parties, and no evidence of any waiver or modification shall be
offered or received in evidence of any proceeding, arbitration, or litigation
between the parties hereto arising out of or affecting this Agreement or the
rights or obligations of the parties hereunder unless such waiver or
modification is in writing duly executed as aforesaid. The parties further
agree that the provisions of this section may not be waived except as herein
set forth.
Section Nine
TERMINATION
a. Employee may terminate his employment with Employer at any time, subject
to notice provisions below, and Employer may only terminate Employee for cause,
as defined below. Employee agrees to give Employer at least sixty (60) days
notice of his intent to voluntarily terminate employment.
b. "For cause" shall include: material breach of this Agreement, illegal or
criminal activity, including theft and embezzlement, unethical conduct,
insubordination, or gross misconduct with regard to Employer's affairs all of
which would be materially inconsistent with industry professional standards.
The determination of whether Employee is to be terminated for cause is at the
sole and absolute discretion of the Employer's Board of Directors. In the
event of a termination without justifiable cause, as provided above, which
termination constitutes a material breach of this Agreement by Employer, or a
termination without a material breach of this Agreement by employee, Employer
shall pay Employee liquidated damages in the dollar amount of salary and other
compensation as described in Section 4 remaining under the full term of the
Agreement. Parties agree that such sum is reasonable under the circumstances
existing at the time this Agreement is entered into, and has been negotiates a
material term of this Agreement in which Employer and Employee have agreed
upon.
Cause shall be determined in good faith by the Employer, without being
arbitrary or capricious. Cause must be material and substantial which includes
but is not limited to fraud or substantial misconduct. In addition, Employer
will conduct reviews of Employee's performance throughout the course of
Employee's employment and provide positive or negative feedback relative to the
Employee's performance within a reasonable time of the event(s) giving rise to
Employee's job performance.
Employer shall give Employee written notice of the termination of this
Agreement specifying the cause pursuant to subparagraph b of this Section Nine
and the termination of this Agreement shall be effective upon the giving of
said notice pursuant to Section Twelve Hereof.
Section Ten
LEGAL REMEDIES
It is further agreed that any breach of any of the terms of this Agreement by
either party which will result in immediate and irreparable injury to Employer
or Employee shall authorize recourse in the form of injunctive relief. In the
event of any court action arising from this Agreement initiated by either
Employer or Employee, the prevailing party shall be entitled to all costs and
attorney's fees from the other party.
Section Eleven
ASSIGNABILITY
This Agreement shall be binding upon the parties hereto, their heirs,
executors, administrators, successors and assigns. Neither the Employee, nor
his heirs or assigns, shall assign any part of his rights under this Agreement.
In the event of a merger, consolidation, reorganization, asset sale/purchase,
stock sale/purchase or otherwise, involving the Employer, Encore or its
successors or subsidiary(s), such event shall obligate such successor to assume
the obligations of this Agreement. During negotiations for any of the
foregoing events of transfer Employee shall disclose to the proposed successor
the continuing obligations of said successor under the terms and conditions of
this Agreement.
Section Twelve
NOTICE
All notices required to be given hereunder shall be in writing, and sent by
registered mail or delivered in person to the parties at their respective
addresses set out in this section.
Employer: Encore International, Inc.
-------------------------
------------------------
Employee: Steve Gould
4120 America's Cup Circle
Las Vegas, NV 89117
All Agreements and covenants contained herein are severable, and in the event
any of them with the exception of those in sections One and Four hereof, shall
be held to be invalid by a court of competent jurisdiction, this Agreement
shall be interpreted as if such invalid agreements or covenants were not
contained herein.
Section Thirteen
AGREEMENTS OUTSIDE THE AGREEMENT
This Agreement contains the complete agreement concerning the employment
arrangement between parties and shall, as of the date hereto, supersede all
other negotiations and agreements with regard to employment between the
parties. The parties stipulate that neither of them has made any
representation with respect to the subject matter of this Agreement or any
representation regarding the execution and delivery hereof, except such
representations as are specifically set forth herein and each of the parties
hereto acknowledges that he/it has relied on their own judgment in entering
into this Agreement. IN WITNESS WHEREOF, the parties have executed this
Agreement at Las Vegas, Nevada, on the date provided in the preamble above.
The undersigned represents and warrants that he has received the authority of
Encore for which he is signing for, and Encore shall be bound to the terms and
conditions of this Agreement.
EMPLOYEE: EMPLOYER:
ENCORE INTERNATIONAL, INC.,
an Oklahoma corporation
/s/ Steve Gould By: /s/ Lee Kaplan
Steve Gould Lee Kaplan
Its: Vice President
EXHIBIT 10.9
LOAN AGREEMENT
Loan Agreement made as of the 9th day of February, 1999 by and among
CONTINENTAL HERITAGE CORPORATION, JULES ROSS, RICHARD A. HAHNER, CASE HOLDINGS,
INC., PETER CASORIA, JR., PETER CASORIA, SR., DENNIS LOPEZ, GERALD M. HOLLAND,
DAMASO W. SAAVEDRA, ROBERT BRAY, STEVE GOULD and LEE KAPLAN.
R E C I T A L S :
A.. As used herein the following terms shall have the meanings set forth below:
(i) the term "Company" shall mean Continental Heritage Corporation, a Delaware
corporation;
(ii) the term "Investors" shall include and mean the following persons, whose
participation in the Loan, as defined below, appears after their respective
names: Jules Ross ($500,000), Richard A. Hahner ($25,000), Case Holdings, Inc.
($100,000), Peter Casoria, Jr. ($50,000), Peter Casoria, Sr. ($25,000), Dennis
Lopez ($25,000) and Gerald M. Holland ($275,000);
(iii) the term "Shareholders" shall mean Robert Bray, Steve Gould, Gerald M.
Holland and Lee Kaplan; and
(iv) the terms "Holland" and "Saavedra" shall mean Gerald M. Holland and Damaso
W. Saavedra, respectively.
B.. The Company proposes to engage in the business of distributing
nutri-ceutical and homeopathic products and the Investors have agreed to make
an initial loan to the Company of up to the sum of One Million Dollars
($1,000,000) upon the terms hereinafter set forth so as to enable the Company
to commence its business activities. NOW THEREFORE, in consideration of the
premises and the mutual covenants, conditions and agreements herein contained,
the parties hereto, each intending to be legally bound, agree as follows:
1.. Initial Loan of $1,000,000.
(a) Upon the terms set forth below, the Investors shall lend to the Company and
the Company shall borrow from the Investors the sum of One Million Dollars
($1,000,000) (the "Loan"), the proceeds of which Loan will be used by the
Company to enable it to commence its business activities as above stated.
(b) Advances by the Investors on account of the Loan shall be made when
requested in writing by the Company to provide the funds required as determined
by management of the Company to enable the Company to commence its business
activities and otherwise to conduct its business. The requests by the Company
are subject to the approval of the Disbursement Agent, which approval shall not
be unreasonably withheld.
(c) The Loan shall be evidenced by the Company's Promissory Note in the
principal amount of One Million Dollars ($1,000,000) (the "Note") in the form
attached hereto as Exhibit "A," which Note shall be executed and delivered to
Gerald M. Holland, as disbursement agent ("Disbursement Agent") for the
Investors, upon the first advance on account of the Loan by the Investors to
the Company.
2.. Class A Warrants. The Company shall issue to each the Investors and
Holland and Saavedra Class A Warrants of the Company enabling the holders
thereof to purchase an aggregate of Two Million Three Hundred Fifty One
Thousand and Two Hundred Fifty (2,351,250) shares of Common Stock, $0.10 par
value, of the Company, upon the terms and conditions set forth in the Class A
Warrants, a copy of which Class A Warrant is attached as Exhibit "B" to this
Loan Agreement. The number of Class A Warrants to be issued to each Investor
and Holland and Saavedra will be in the following amounts:
Name of Investor Shares Subject to Class A Warrants
Jules Ross 1,000,000
Richard A. Hahner 50,000
Case Holdings, Inc. 200,000
Peter Casoria, Jr. 100,000
Peter Casoria, Sr. 50,000
Dennis Lopez 50,000
Gerald M. Holland 550,000
Gerald M. Holland 210,750
Damaso W. Saavedra 140,500
3. Class B and Class C Warrants
(a) The Company and the Shareholders entered into a Stock Exchange Agreement
dated November 27, 1998, pursuant to which the Company acquired from the
Shareholders all of the outstanding stock of Encore International, Inc.
("Encore") in exchange for an aggregate of 5,500,000 shares of the Company's
Common Stock, of which 521,136 shares were transferred by Messrs. Gould and
Kaplan to satisfy in whole or in part certain obligations of Encore, leaving
the Shareholders owning 4,978,264 shares of Common Stock of the Company as
follows:
Robert Bray 550,000
Steve Gould (held by Fat Cat, LLC) 2,090,382
Gerald Holland 247,500
Lee Kaplan 2,090,382
Under the terms of the Stock Exchange Agreement, the Company has agreed to
issue an additional 1,000,000 shares to the Shareholders if the consolidated
net revenues of the Company are at least $8,000,000 for the twelve (12) month
period commencing March 1, 1999; and an additional 1,000,000 shares if the
consolidated net revenues of the Company are at least $15,000,000 (on a
non-cumulative basis) for the twelve (12) month period commencing March 1,
2000.
(b) In the event that the Shareholders shall be entitled to receive 1,000,000
additional shares of the Company's Common Stock based upon the consolidated net
revenues of the Company being at least $8,000,000 for the twelve (12) month
period commencing March 1, 1999, then in such event there shall be issued to
Saavedra and Holland, Class B Warrants in the form attached hereto as Exhibit
"C" to purchase an additional 427,500 shares of the Company's Common Stock.
(c) In the event that the Shareholders shall be entitled to receive 1,000,000
additional shares of the Company's Common Stock based upon the consolidated net
revenues of the Company being at least $15,000,000 for the twelve (12) month
period commencing March 1, 2000, then in such event there shall be issued to
Saavedra and Holland, Class C Warrants in the form attached hereto as Exhibit
"D", to purchase an additional 427,500 shares of the Company's Common Stock.
(d) In the event either the Class B Warrants or Class C Warrants are to be
issued, Holland shall be entitled to Class B or Class C Warrants to purchase
256,500 shares of Common Stock and Saavedra shall be entitled to Class B or
Class C Warrants to purchase 171,000 shares.
4. Additional Loan.
(a) In the event the Company should require additional funds over and above the
amounts to be advanced by the Investors on the Initial Loan as evidenced by the
Note, the Investors agree to lend to the Company an additional sum of Five
Hundred Thousand Dollars ($500,000) ("Additional Loan") which Additional Loan
will be evidenced by a promissory note of the Company repayable in six (6)
equal monthly installments over the six month period commencing one year from
the date of this Agreement with interest at the rate of ten percent (10%) per
annum payable monthly with each monthly installment of principal. The
obligation of each Investor to make the Additional Loan shall be based upon his
or its pro rata share of the Initial Loan. Repayment of the Additional Loan
shall be secured by a lien against products ordered by the Company with the
funds provided by the Investors under the Additional Loan under a security
agreement in form mutually approved by the Investors and the Company.
(b) At the time of making the Additional Loan, the Company shall issue to the
Investors as per their pro rata share of the Additional Loan additional
warrants entitling the holders of such warrants to purchase 1,000,000 shares of
Common Stock of the Company upon the same terms and conditions set forth in the
Class A Warrants with the term of such additional warrants commencing at the
time of the making of the Additional Loan.
(c) At the time of the making of the Additional Loan, the Investors shall
receive from counsel to the Company its opinion to the effect that the
Investors have received a valid and enforceable security interest in the
products as security for the Company's repayment of the Additional Loan.
5. Shareholders' Non-Recourse Pledge Agreement; Irrevocable Proxy.
(a) The Shareholders shall execute and deliver to the Investors a Shareholders'
Non-Recourse Pledge Agreement in the form of Exhibit "E" hereto, pursuant to
which the Shareholders shall pledge on a non-recourse basis the 4,978,264
shares of the Company's Common Stock as collateral security for repayment of
the Note and to secure performance by the Shareholders of their covenants and
agreements in this Loan Agreement upon the occurrence of an event of default as
defined in the Shareholders' Non-Recourse Pledge Agreement.
(b) Each Shareholder shall execute and deliver to the Investors an Irrevocable
Proxy in the form of Exhibit "E-1" hereto entitling the Investors or a person
nominated by them to vote all of the 4,978,264 shares owned by the Shareholders
and any additional shares of Common Stock any of such Shareholders shall
receive as set forth in Section 3(b) or 3(c) hereof.
(c) If the Shareholders should receive any additional shares of the Company's
Common Stock as described in Sections 3(b) or 3(c) hereof, such shares shall be
added to and become part of the Collateral under the Shareholders' Non-Recourse
Pledge Agreement. Further, all Class A Warrants which Steve Gould and Lee
Kaplan shall receive as provided in Section 11(f) hereof shall upon their issue
be added to and become part of the Collateral under the Shareholders'
Non-Recourse Pledge Agreement.
6. Additional Pledge Agreement. Holland and Saavedra shall enter into a
Non-Recourse Pledge Agreement in the form of Exhibit "F" hereto with the
Investors whereby the Class A Warrants to purchase 351,250 shares of Common
Stock to be issued to Holland and Saavedra under the provisions of Section 2
above shall be pledged as collateral security for repayment of the Note.
7. Grant of Distributorship to Investors. The Company shall grant to the
Investors a Master Distributorship directly below the Master Distributorship
granted by the Company to Lee Kaplan and directly above the Distributorship to
be granted to Aspira 2000, Inc. in connection with its transfer to the Company
of its assets. The Master Distributorship to be granted to the Investors shall
be operated in accordance with Distributor policies of VisionQuest Worldwide,
Inc., the subsidiary of the Company, and is entitled to receive in accordance
with VisionQuest's Distributor Compensation Plan, commissions and bonuses on
down-line sales activity. The Investors shall receive eighty percent (80%) of
the commissions earned by the Master Distributorship, which shall be paid as
provided in the next sentence of this Section 7, and ten percent (10%) of such
commissions shall be paid to each of Holland and Saavedra. Payment of the
commissions earned by the Master Distributorship will be made monthly by the
Company and will be included in the Company's regular monthly bonus run with
Holland and Saavedra each receiving ten percent (10%) thereof and each Investor
receiving the percentage of the balance of eighty percent (80%) of such
commissions set forth following his or its respective names:
Name of Investor Percentage
Jules Ross 50.00%
Gerald Holland 27.50%
Case Holdings, Inc. 10.00%
Peter Casoria, Jr. 5.00%
Peter Casoria, Sr. 2.50%
Dennis Lopez 2.50%
Richard A. Hahner 2.50%
8. Documents Delivered to Investors. Each Investor acknowledges that such
Investor has received from the Company copies of the following reports or
documents ("SEC Reports") filed by the Company with the Securities and Exchange
Commission pursuant to the provisions of the Securities Exchange Act of 1934,
as amended: (i) Annual Report on Form 10-K for the three fiscal years ended
October 31, 1997; (ii) Current Report on Form 8-K dated September 3, 1998;
(iii) Quarterly Report on Form 10-Q for the quarterly period ended January 31,
1998; (iv) Quarterly Report on Form 10-Q for the quarterly period ended April
30, 1998; (v) Quarterly Report on Form 10-Q for the quarterly period ended July
31, 1998; (vi) Information Statement pursuant to Section 14 (f) of the
Securities Exchange Act of 1934 and Rule 14 (f)-1 thereunder; (vii) Current
Report on Form 8-K dated December 7, 1998 and amendment thereto dated January
22, 1999; and (vii) Current Report on Form 8-K dated January 22, 1999. Copies
o f a Business plan of VisionQuest Worldwide, Inc., a wholly owned subsidiary
of the Company, has also been delivered to each of the Investors.
9. Representations and Warranties of the Company and the Shareholders. Each of
the Company and the Shareholders warrants and represents to the Investors that:
(a) The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is duly qualified as a
foreign corporation and in good standing under the laws of each other
jurisdiction where it owns property or where the nature of its business
requires it to be qualified to do business. The Company has full corporate
power and authority to own, lease and operate its properties and assets and to
conduct its business as now being conducted.
(b) Each Shareholder is the beneficial owner of the Company's Common Stock set
forth in Section 3(a) of this Agreement, free and clear of any liens,
mortgages, claims, charges, security interests, encumbrances or other
restrictions or limitations affecting such person's ability to transfer the
same. There is no right, subscription, warrant, call, unsatisfied preemptive
right, option or other agreement of any kind to purchase or otherwise receive
from each such person any shares of capital stock or any other securities of
the Company.
(c) Neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will (i) violate, conflict with or
result in the breach or termination of, or otherwise give any other contracting
party the right to terminate, or constitute a default (by way of substitution,
novation or otherwise) under the terms of, any mortgage, lease, bond,
indenture, agreement, franchise or other instrument or obligation to which the
Company or any Shareholder is a party or by which any of them may be bound or
(ii) violate any judgment, order, injunction, decree or award of any court,
arbitrator, administrative agency or governmental body against or binding upon
Encore or any of such persons.
(d) The Company has authorized capitalization consisting of 10,000,000 shares
of Common Stock, $.10 par value, and 2,000,000 shares of "blank-check"
Preferred Stock, $.50 par value. As of the date of this Agreement there are
issued and outstanding 6,928,860 shares of such Common Stock and no shares of
the Preferred Stock. All of the outstanding shares of capital stock of the
Company have been duly authorized, validly issued and are fully paid and
nonassessable. There are no other classes of capital stock of the Company
authorized or outstanding. Other than the 2,000,000 shares of Common Stock that
may be issued as described in Section 3 hereof, or the shares of Common Stock
that may be issued from exercise of the Class A, Class B or Class C Warrants or
other warrants referred to in this Loan Agreement, there are no rights,
subscriptions, warrants, calls, unsatisfied preemptive rights, options or other
agreement of any kind to purchase or otherwise to receive from the Company any
of the authorized but unissued shares of the capital stock or any other
securities of the Company and no securities or obligations of any kind
convertible into such capital stock exist in favor of any person, firm or
corporation.
(e) Other than Apollo Enterprises, Inc., National Heritage Corporation and M.N.
Properties, Inc., each of which is a Texas corporation, Encore International,
Inc., an Oklahoma corporation and VisionQuest Worldwide, Inc., a Nevada
corporation, the Company does not have any Subsidiaries (as hereinafter
defined), nor does it directly or indirectly own nor has it made any investment
in any of the capital stock of, or any other proprietary interest in, any other
person including but not limited to joint ventures and partnerships. As used
herein, the term "Subsidiaries" shall mean any corporation, person, firm or
other entity as to which the Company directly or indirectly owns or has the
power to vote, or to exercise a controlling influence with respect to, 50% or
more of the securities of any class of such person the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the election
of directors (or persons performing similar functions) of such person.
(f) (i) Each of the financial statements of the Company and Encore, including
the footnotes thereto, included in the SEC Reports ("Financial Statements")
delivered to each Investor, have been prepared in conformity with generally
accepted accounting principles and fairly present the financial condition and
results of operations of the Company and Encore as of the respective dates of
such financial statements and for the fiscal periods then ended.
(ii) Since October 31, 1998 there has been no material adverse change in the
assets, properties or financial condition of the Company on its Subsidiaries.
(g) The Company has recorded no income tax liability on its Balance Sheets
included in the Financial Statements. The total amounts set up as liabilities
for current taxes on the Balance Sheets in the Financial Statements are
sufficient to cover the payment of all claims, whether known or unknown, with
respect to all Taxes (as hereinafter defined). The Company has filed all
federal, state and local tax returns which are required to be filed or has
requested extensions thereof and has paid all Taxes shown on such returns and
all assessments received by it to the extent that the same have become due
except as shown on the aforesaid Balance Sheet. The Company has not agreed nor
is it required to make any adjustment under the provisions of the Internal
Revenue Code or any similar state or local law by reason of a change in
accounting method or otherwise. To the best knowledge of the Company, there
are no pending claims with respect to Taxes. Neither the Federal income tax
returns of the Company nor its state and local returns (measured, in whole or
in part, by income) have been audited. As used herein the term "Taxes" shall
include all income tax liability, deferred income tax liability and other
taxes, including, without limitation, income taxes, estimated taxes, excise
taxes, sales taxes, use taxes, gross receipts taxes, franchise taxes,
employment and payroll related taxes, property taxes and import duties, whether
or not measured in whole or in part by net income and whether or not assessed
or disputed, that are payable or deferrable, by the Company through July 31,
1998, or as to which the Company may have any liability for taxable periods
ending on or before such date, and all deficiencies or other additions to tax,
interest and penalties owed by the Company or as to which the Company may have
liability in connection with any of the foregoing.
(h) All documents, Exhibits and other materials delivered or to be delivered by
or on behalf of the Company to the Investors in connection with this Loan
Agreement and the transactions contemplated hereby are to the best of the
Company's knowledge true and complete. The information furnished by or on
behalf of the Company in connection with this Loan Agreement and the
transactions contemplated hereby does not, to the best of the Company's
knowledge, contain any untrue statement of a material fact and does not omit to
state any material fact required to be stated therein or necessary to make the
statements therein not false or misleading.
10. Representations and Warranties of the Investors. Each Investor hereby
represents and warrants to the Company as follows:
(a) Such person has received and carefully reviewed the SEC Reports and
documents referred to in Section 8 hereof.
(b) He has had reasonable opportunity to ask questions of and receive answers
from the management of the Company concerning the Company, its proposed
business and the Loan, and all such questions, if any, have been answered to
the full satisfaction of such Investor.
(c) Has such knowledge and expertise in financial and business matters that
such Investor is capable of evaluating the merits and risks involved in an
investment in the Notes, the Class A Warrants and the Warrant Shares, as such
latter term is defined in the Class A Warrants.
(d) Acknowledges that the Company has determined that the exemption from the
registration provisions of the Securities Act of 1933, as amended, ("Securities
Act") for the issue of the Note, the Class A Warrants and the Warrant Shares
upon exercise of the Class A Warrants is based upon, in part, the
representations, warranties and agreements made by each Investor herein.
(e) Except as set forth in the documents described in Section 8 hereof, no
representations or warranties have been made to an Investor by the Company or
any agent, employee or affiliate of the Company and in entering into this Loan
Agreement, each Investor acknowledges that he or it has not relied on any
information, other than that contained in the documents delivered to him or it
by the Company and the results of independent investigations, if any, made by
such Investor.
(f) Each Investor understands that the Note, the Class A Warrants and the
Warrant Shares have not been registered under the Securities Act or the
Securities Laws of any state, based upon an exemption from such registration
requirements for non-public offerings to "Accredited Investors."
(g) That he or it has been advised that:
(i) The Notes, the Class Warrants and the Warrant Shares are "Restricted
Securities" as said term is defined in Rule 144 of the Rules of Regulations
promulgated under the Securities Act;
(ii) The Notes, the Class A Warrants and the Warrant Shares may not be sold or
otherwise transferred unless they have first been registered under the
Securities Act and all applicable State Securities Laws, unless exemption from
such registration provisions are available with respect to said resale or
transfer;
(iii) Other than as set forth in the Class A Warrants, the Company is under no
obligation to register the Class A Warrants or the Warrant Shares under the
Securities Act or any State Securities Laws or to take any action to make an
exemption from such registration provisions available;
(iv) The Class A Warrants and the certificates that will evidence the Warrant
Shares will bear a legend to the effect that the transfer of the same is
subject to the provisions hereof; and
(v) Stop transfer instructions will be placed with the transfer agent for the
Common Stock of the Company.
(h) Each Investor is acquiring his or its interest in the Notes, the Class A
Warrants and any Warrant Shares solely for the account of such Investor, for
investment purposes only and not with a view towards the resale or distribution
thereof.
(i) The Investor will not sell or otherwise transfer his interest in the Note,
the Class A Warrant or the Warrant Shares or any interest therein, unless and
until such securities have first been registered under the Securities Act and
all applicable State Securities Laws; or such Investor shall have first
delivered to the Company a written opinion of counsel (which counsel and
opinion, in form and substance, shall be reasonably satisfactory to counsel to
the Company) to the effect that the proposed sale of transfer is exempt from
the registration provisions of the Act and all applicable State Securities
Laws.
(j) Each Investor has full power and authority to execute and deliver this Loan
Agreement and to perform their respective obligations hereunder.
(k) Each Investor confirms to the Company that he or it is an Accredited
Investor within one of the following three definitions and shall indicate at
the end of the Loan Agreement in which category he or it is:
(i) a natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of this Loan Agreement exceeds $1,000,000;
(ii) a natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with his spouse in excess of
$300,000 in each of those years and has reasonable expectation of reaching the
same income level in the current year; or
(iii) is an entity in which all the equity owners are Accredited Investors.
11. Additional Agreements.
(a) Except with the prior written approval of the Investors, the net proceeds
that the Company receives on any sale of its capital stock after deduction of
the expenses of such sale or offering, such as underwriting or brokers
commissions and other expenses of sale including legal and accounting fees,
shall first be applied to the payment of the Note and thereafter to the payment
of the note evidencing the Additional Loan. Only after the Note and any note
evidencing the Additional Loan have been paid in full may the Company use the
net proceeds from any sale of its capital stock for any other purpose.
(b) It is the intent of the parties to this Loan Agreement that in order to
prevent dilution of the shares of Common Stock that may be issuable upon
exercise of the Class A Warrants, Class B Warrants or Class C Warrants, the
number of shares so issuable upon such exercise will be adjusted to reflect the
issue by the Company of shares of its Common Stock or options to purchase
shares of Common Stock of the Company or of any subsidiary to any of the
Shareholders or to any executive officer or director of the Company in lieu of
compensation or as additional compensation. In the event that during the term
of the Class A Warrants, Class B Warrants or Class C Warrants shares of Common
Stock are so issued by the Company, then the number of Warrant Shares issuable
under any of the classes of warrants then outstanding shall be increased by the
number of shares of Common Stock so issued by the Company, with each holder of
a Class A, Class B or Class C Warrant being entitled to purchase on a pro rata
basis the additional shares of Common Stock available for his or its particular
class of warrants at the same price and terms as in such class of warrants.
(c) So long as the Note or a note evidencing the Additional Loan should remain
outstanding and unpaid, the Company will cause to be elected to its Board of
Directors, two designees of the Investors. Initially, such designees shall be:
________.
(d) (i) Until such time as the Note is paid in full, the Company shall maintain
a "key man" life insurance policy issued by an A rated insurance company on the
life of Steve Gould in the amount of Two Million Dollars ($2,000,000) with the
beneficiaries of such insurance policy being the Investors. The "keyman"
insurance policy must be in full force or effect prior to the first advance of
the Loan under Section 1(b) hereof.
(ii) Any payments received by the Investors on the "keyman" insurance policy
shall be applied first to payment of interest and principal on the Note. Any
surplus of such proceeds shall be applied to payment of accrued interest and
principal on the Additional Loan, if then outstanding. The balance of such
proceeds, if any, after such applications shall be paid to the Company.
(e) Gerald M. Holland is hereby appointed the Disbursement Agent under this
Loan Agreement. As such Disbursement Agent, he is authorized by the Investors
and the Company to establish an account with a bank in the Fort Lauderdale,
Florida area in which to deposit the funds provided by the Investors for the
Initial Loan and for any Additional Loans. Such account shall be in the name
of the Company but Gerald M. Holland, as the Disbursement Agent, shall be the
only authorized signatory on such account. The Disbursement Agent shall
disburse the funds from such account on account of the Initial Loan or the
Additional Loan as and when requested by the Company to the extent and as
provided in Section 1(b) of this Loan Agreement. The Disbursement Agent shall
also act as the Disbursement Agent under the Note so as to collect all payments
of interest and principal on account of the Note or any note under the
Additional Loan and to distribute the same among the Investors according to
their re spective interest in the Initial Loan or the Additional Loan.
(f) (i) The Promissory Notes of the Company, each in the amount of $56,000 and
dated October 1, 1998, payable to each of Steve Gould and Lee Kaplan, shall be
canceled and new Promissory Notes ("New Notes") to replace the existing
Promissory Notes, each in the amount of $56,000, shall be delivered by the
Company to each of Steve Gould and Lee Kaplan. The New Notes shall bear
interest at the annual rate of 10% per annum and shall be repayable upon the
same terms and conditions as the Note, provided however, that no payment of
interest or principal shall be made on the New Notes to be delivered to Steve
Gould and Lee Kaplan unless at such time all payments of principal and interest
on the Note then due and payable have been made.
(ii) In consideration of Steve Gould and Lee Kaplan accepting the New Notes to
replace their current Promissory Notes, the Company shall issue to each Class A
Warrants to purchase 112,000 shares of the Common Stock of the Company.
(g) The Company may borrow from Alan Cote the sum of $100,000, which loan is to
be evidenced by a promissory note bearing interest at the rates of 10% per
annum, with interest and principal payable on the same terms as that provided
in the Note. Such promissory note shall provide that no payment of principal
or interest may be made on the promissory note delivered by the Company to Alan
Cote unless all payments of principal and interest then due on the Note have
been paid. In connection with such loan, the Company may issue to Alan Cote
Class A Warrants to purchase 200,000 shares of the Company's Common Stock.
(h) Upon execution of this Loan Agreement, counsel for the Company shall
deliver to the Investors its legal opinion to the following effect: Neither
the execution and delivery of the Loan Agreement, nor the consummation of the
transactions contemplated under the Loan Agreement will:
(i) to the best of knowledge of said counsel after due inquiry, result in any
violation of or be in conflict with or result in the breach or termination of,
or otherwise give any other contracting party with the Company the right to
terminate, or constitute a default (by way of substitution, novation or
otherwise) under the terms of any mortgage, lease, bond, indenture, agreement,
franchise or other instrument or obligation to which the Company is a party or
by which it may be bound; or
(ii) Cause the entry of any judgment, order, injunction, decree or award of any
court, arbitrator, administrative agency or governmental body against or
binding upon the Company; and
(iii) That the Irrevocable Proxy granted by the Shareholders to the Investors
is a valid proxy entitling the holders thereof to vote the shares of Common
Stock of the Company subject to the Irrevocable Proxy to the extent provided in
the Irrevocable Proxy.
12. Miscellaneous.
(a) All notices or other communications required or permitted by this Agreement
shall be sufficiently given if in writing and only delivered (personally, by
courier service such as Federal Express or by other messenger) or mailed by
registered or certified mail, return receipt requested, as follows:
If to the Company:
2140 America's Cup Circle, Las Vegas, NV 89117
If to the Shareholders, as follows:
Gould - 2140 Americas Cup Circle, Las Vegas, NV 89117
Kaplan - P. O. Box 23481, Federal Way, WA 98093
Bray - 10009 Huntleigh Drive, Oklahoma City, OK 73120
Holland - 4860 NE 12th Ave., Ft. Lauderdale, FL 33334
If to the Investors, as follows:
or to such other address as hereafter shall be furnished as provided in this
Section 6.1 by any of the parties hereto to the other party hereto.
(b) Each party will pay its or his own expenses with respect to the preparation
of this Agreement and the documents attendant thereto.
(c) This Agreement shall not be assignable by any party, and shall not be
altered or otherwise amended except pursuant to a writing executed by all of
the parties hereto.
(d) If any provision of this Agreement, or the application of any such
provision to any person or circumstance, shall be held invalid by a court of
competent jurisdiction, the remainder of this Agreement, or the application of
such provision to persons or circumstances other than those as to which it is
held invalid, shall not be affected thereby.
(e) This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute a
single instrument. It shall not be necessary that any counterpart be signed by
all of the parties hereto.
(f) All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine or neuter, singular or plural, as the identity of the
person or persons or entity or entities may require.
(g) Neither the failure nor any delay on the part of either party to exercise
any right, remedy, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, remedy,
power or privilege preclude any other or further exercise of the same or of any
other right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver.
(h) This Agreement and all questions relating to its validity, interpretation,
performance and enforcement (including, without limitation, provisions
concerning limitations of actions), shall be governed by and construed in
accordance with the laws of the State of Delaware, notwithstanding any
conflict-of-laws doctrines of such state or other jurisdiction to the contrary,
and without the aid of any canon, custom or rule of law requiring construction
against the draftsman. At the direction of Investors, the Courts of the State
of Delaware or Florida or of the United States District Court in either such
state shall be competent Courts to adjudicate any disputes arising out of this
Agreement and the parties hereto submit to the personal jurisdiction of each of
such Courts and waive all rights to waive jurisdiction.
(i) This Agreement contains the entire Agreement and understanding of the
parties with respect to the subject matter hereof, and no variations hereof or
alterations or amendments to this Agreement shall be binding unless made in
writing and signed by all of the parties.
(j) All Exhibits and Schedules attached hereto are incorporated by reference
into, and made a part of, this Agreement.
(k) The Section headings are for convenience only; they form no part of this
Agreement and shall not affect its interpretation.
13. By each Investor executing this Loan Agreement, such Investor acknowledges
that he or it has been advised that the law firm of Kopelowitz, Saavedra and
Palosi do not represent such Investor in this matter nor does it practice or
have the legal competence in securities and securities laws matters. Each
Investor has previously been advised to seek the advice of counsel of their own
choosing. Further, each Investor has been apprised of the fact that Damaso W.
Saavedra has an inherent conflict of interest in the transactions covered by
the Loan Agreement since he will be receiving Class A Warrants, Class B
Warrants, and Class C Warrants to the extent provided in the Loan Agreement.
By executing this Loan Agreement, each investor waives any claims that he or it
may have against the law firm of Kopelowitz, Saavedra and Palosi or Damaso W.
Saavedra for any acts they have performed in connection with the negotiation
and preparation of this Loan Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the
date first written above.
INVESTORS: CATEGORY OF ACCREDITED INVESTOR CONTINENTAL HERITAGE
CORPORATION
/s/ Jules Ross By: /s/
President
/s/ Gerald M. Holland /s/
Steven Gould
/s/ Peter Casoria, Jr.
/s/ Lee Kaplan
/s/ Peter Casoria, Sr. /s/ Robert Bray
/s/ Dennis Lopez /s/ Gerald M. Holland
/s/ Richard A. Hahner FAT CAT, LLC
By: /s/
Steve Gould
CASE HOLDINGS, INC.
By: /s/
Title
/s/
Damaso W. Saavedra
EXHIBIT 10.10
PROMISSORY NOTE
$1,000,000 February 12, 1999
FOR VALUE RECEIVED, Continental Heritage Corporation, a Delaware corporation,
having its principal business office at 2140 America's Cup Circle, Las Vegas,
NV 89117 ("Maker"), promises to pay the order of Gerald Holland ("Disbursement
Agent"), 4860 N.E. 12th Avenue, Fort Lauderdale, Florida 33334, the principal
sum of One Million Dollars ($1,000,000) lawful money of the United States of
America, or so much of that sum as may be advanced under this Note, together
with interest at the annual rate of ten percent (10%) per annum from the date
or dates of disbursement of the outstanding balance thereof, on the terms set
forth herein, as follows:
1. This Note has been issued by the Maker pursuant to the terms and provisions
of a certain Loan Agreement ("Loan Agreement") dated February 9, 1999 by and
among the Maker, Jules Ross, Richard A. Hahner, Case Holdings, Inc., Peter
Casoria, Jr., Peter Casoria, Sr., Dennis Lopez and Gerald M. Holland (the
"Payees") and Robert Bray, Steve Gould, Gerald Holland and Lee Kaplan, the
beneficial owners of 4,978,264 shares of Common Stock, $.10 par value, of Maker
("Shareholders"). All of the agreements, conditions, covenants, provisions and
stipulations contained in the Loan Agreement which are to be kept and performed
by Maker or the Shareholders with respect to the Loan, as defined therein, and
this Note are hereby made a part of this Note to the same extent and with the
same force and effect as if they were fully set forth herein, and Maker
covenants and agrees to keep and perform them, or cause them to be kept and
performed, strictly in accordance with their terms.
2. (a) Subject to the terms of the Loan Agreement, interest shall accrue, in
arrears, without setoff or deduction, from the date of the first advance
hereunder and continuing until the Maturity Date (as hereinafter defined).
Payment of accrued interest prior to the Maturity Date, as defined below, shall
be made on the last day of each month commencing with the month of September,
1999 and on the Maturity Date.
(b) Commencing on the last day of March, 2000, and on the last day of each
month thereafter to and including the Maturity Date, Maker shall make six (6)
consecutive principal payments of one-sixth (1/6) of the aggregate sums
advanced to the Maker hereunder by the Payees each of which principal payments
shall be accompanied by a payment of interest as provided in Section 2(a) above
on the unpaid principal balance of this Note at the rate provided.
(c) The entire unpaid principal balance of this Note and all interest accrued
thereon but not previously paid and all other sums payable hereunder, shall be
due and payable in full on August 31, 2000 (the "Maturity Date").
3. The principal and interest shall be payable to the Disbursing Agent at his
address set forth above, or at such other place as Payees, from time to time,
may designate in writing. The Disbursing Agent shall, upon his receipt of
payment of interest or principal and collection of such amount distribute to
each of the Payees his or its proportionate share of the interest and principal
of each such payment on account of this Note as provided in the Loan Agreement.
4. Maker shall have the privilege of prepaying this Note in full but not in
part without penalty, at any time, provided not less than twenty (20) days
written notice of such election is given by Maker to the Payees.
5. It is further understood, however, that should any default be made in the
payment of any installment of principal and interest or any other payment due
under this Note on the date such payment is due, or in the performance of any
of the agreements, conditions, covenants, provisions or stipulations contained
in this Note, in the Loan Agreement or in any of the Loan Documents, as herein
defined, or should the employment by the Company of Steve Gould be terminated
for any reason whatsoever, then the Disbursement Agent, acting pursuant to
instructions of the Payees, at their option and without notice to Maker unless
expressly required elsewhere in this Note or the Loan Agreement, may declare
due and payable immediately the entire unpaid balance of principal and all
other sums due by Maker under this Note, with interest accrued on it at the
applicable rate specified above to the date of default and after that date at a
"default rate" which shall be highest rate of interest permitted und er the
laws of Florida, notwithstanding anything to the contrary in this Note or in
the Loan Agreement; and payment may be enforced and recovered in whole or in
part at any time by one or more of the remedies provided to Payees in this
Note. In such a case Payees may also recover all costs of suit and other
expenses in connection with it, together with reasonable attorneys' fees for
collection, together with interest on any judgment obtained by Payees at the
default rate (defined above), including interest at the default rate from and
after the date of any execution, judicial or foreclosure sale until actual
payment is made to Payees of the full amount due Payees. This Note, the Loan
Agreement and the Non-Recourse Pledge and Conditional Irrevocable Proxy
Agreement, each of which are referred to herein, shall sometimes be hereinafter
referred to herein as the "Loan Documents."
6. Payment of this Note is secured by a Shareholders' Non-Recourse Pledge
Agreement among the Shareholders, the Maker and the Payees pursuant to which
shares of Common Stock, $.10 par value, of the Maker and Class A Warrants have
been pledged as security for payment of this Note by the Maker.
7. Payees, or the Disbursing Agent on their behalf, shall not exercise any
right or remedy provided for herein because of any default of Maker unless (i)
in the event of a monetary default, Maker shall have failed to pay the
outstanding sums within a period of five (5) business days after the date of
the notice of default has been given by the Disbursing Agent or the Payees; or
(ii) in the event of a non-monetary default, Maker shall have failed within a
period of thirty (30) days after the date Payees or the Disbursing Agent, as
the case may be, has given Maker written notice of such default to cure the
non-monetary default; provided, however, Payee shall not be required to give
any such notice or to allow any part of the grace period if Maker shall have
filed a petition in bankruptcy or reorganization or a bill in equity or
otherwise initiated proceedings for the appointment of a receiver of its
assets, or if Maker shall have made an assignment for the benefit of creditors,
or if a receiver or trustee is appointed for Maker and such appointment or such
receivership is not terminated within thirty (30) days.
8. Payees' failure to exercise their option to accelerate the indebtedness
evidenced by this Note shall not constitute a waiver of the right to exercise
that option at any other time so long as that event of default remains
outstanding and uncured, or to exercise it upon the occurrence of another
default.
9. The remedies of Payees as provided in this Note shall be cumulative and
concurrent; may be pursued singly, successively, or together at the sole
discretion of Payees, may be exercised as often as occasion for their exercise
shall occur; and in no event shall the failure to exercise any such right or
remedy be construed as a waiver or release of it.
10. Maker waives presentment for payment, demand, notice of demand, notice of
nonpayment or dishonor, protest and notice of protest of this note, and all
other notices in connection with the delivery, acceptance, performance,
default, or enforcement of the payment of this Note, and it agrees that its
liability shall be unconditional, without regard to the liability of any other
party, and shall not be affected in any manner by any indulgence, extension of
time, renewal, waiver, or modification granted or consented to by Payees.
11. If any provision of this Note is held to be invalid or unenforceable by a
Court of competent jurisdiction, the other provisions of this Note shall remain
in full force and effect and shall be construed liberally in favor of Payees in
order to effectuate the provisions of this Note. In no event shall the rate of
interest payable under this Note exceed the maximum rate of interest permitted
to be charged by the laws of Florida (including the choice of law rules) and
any interest paid in excess of the permitted rate shall be refunded to Maker.
That refund shall be made by application of the excessive amount of interest
paid against any sums outstanding and shall be applied in such order as Payee
may determine. If the excessive amount of interest paid exceeds the sums the
outstanding, the portion exceeding the sums outstanding shall be refunded in
cash by Payees. Any crediting or refund shall not cure or waive any default by
Maker under this Note. Maker agrees, however, that in d etermining whether or
not any interest payable under this Note exceeds the highest rate permitted by
law, any non-principal payment including, without limitation, prepayment fees
and late charges shall be deemed, to the extent permitted by law, to be an
expense, fee, premium or penalty rather than interest.
12. Payees shall not be deemed, by any act or omission or commission, to have
waived any of their rights or remedies under this Note unless the waiver is in
writing and signed by Payees, and then only to the extent specifically set
forth in the writing. A waiver on one event shall not be construed as
continuing or as a bar to or waiver of any right or remedy to a subsequent
event.
13. This instrument shall be governed by and construed according to the laws
of the State of Florida.
14. Whenever used, the singular number shall include the plural, the plural
the singular, the use of any gender shall be applicable to all genders, and the
words "Payees" and "Maker" shall be deemed to include the respective heirs,
personal representatives, successors and assigns of Payee and Maker. If Maker
consists of more than one person, corporation or other entity, the obligations
and liabilities of such persons, corporations or other entities under this Note
shall be joint and several, and the word "Maker" shall mean all or some or any
of them.
15. As provided in the Loan Agreement, the Disbursement Agent has been
authorized to act on behalf of the Payees with respect to this Note as and to
the extent instructed by the Payees.
16. All payments under this Note shall be made in such coin or currency of the
United States of America as at the time of payment shall be legal tender for
the payment of public or private debts.
17. Time is of the essence as to each provision of this Note which requires
Maker to take any action within a specified time period.
MAKER AND PAYEES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT EITHER MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, VERBAL OR WRITTEN STATEMENTS OR ACTIONS OF EITHER
PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR PAYEES TO MAKE THE
LOAN EVIDENCED BY THIS NOTE.
IN WITNESS WHEREOF, Maker, intending to be legally bound, has duly executed
and delivered this Note.
CONTINENTAL HERITAGE CORPORATION
By: /s/ Steve Gould
Steve Gould, President
EXHIBIT 10.11
No. WA -
THE CLASS A WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON THE EXERCISE OF SUCH CLASS A WARRANTS MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS, OR (ii) AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND STATE LAWS WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF COUNSEL THAT EXEMPTIONS FROM
REGISTRATION UNDER SUCH ACT AND LAWS ARE AVAILABLE.
THE TRANSFER OR EXCHANGE OF THIS WARRANT IS RESTRICTED IN ACCORDANCE WITH THE
TERMS HEREOF.
--------------------
THIS CLASS A WARRANT IS ONE OF A SERIES OF CLASS A WARRANTS ISSUED BY
CONTINENTAL HERITAGE CORPORATION ENTITLING THE HOLDERS THEREOF TO PURCHASE AN
AGGREGATE OF 2,775,250 SHARES OF COMMON STOCK, $.10 PER VALUE, OF CONTINENTAL
HERITAGE CORPORATION.
------------------
CLASS A WARRANT TO PURCHASE [ ] SHARES OF COMMON STOCK
PAR VALUE $.10 PER SHARE
OF
CONTINENTAL HERITAGE CORPORATION
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN TIME, FEBRUARY 8, 2004
This is to certify that, for value received, _________________ (the "Holder")
or its assigns (the "Holder" or "Holders") is entitled to purchase, subject to
the provisions of this Warrant, from Continental Heritage Corporation, a
Delaware corporation (the "Company"), ___________ ( ) shares of the
Company's Common Stock, par value $.10 per share (the "Common Stock"), on the
terms and conditions set forth herein. This Warrant and any Warrant resulting
from a transfer or subdivision of this Warrant shall sometimes hereinafter be
referred to as a "Warrant" or, collectively as the "Warrants".
1. The purchase price of each share of Common Stock subject to this Warrant
(the "Warrant Shares") shall be $.3125 per share, subject to adjustment as set
forth herein (the "Purchase Price").
2. The Warrant shall be exercisable from time to time during the period of five
(5) years, commencing on February 9, l999, and terminating at 5:00 P.M.,
Eastern Time, on February 8, 2004 (the "Exercise Period"), provided however,
that the Exercise Period shall be subject to termination earlier than February
8, 2004, as provided in Section l0(d) hereof.
3. The Purchase Price of the Warrant Shares shall be paid in full at the time
of exercise, by cashier or certified check therefor, payable to the Company, as
hereinafter provided. The Holder shall not have any of the rights of a
shareholder with respect to the Warrant Shares as to which this Warrant shall
not have been exercised and payment made as herein provided.
4. In the event of a stock dividend, recapitalization, reorganization,
subdivision, combination, exchange or reclassification of shares of Common
Stock of the Company, or any other change in the corporate structure or shares
of Common Stock of the Company, prior to the exercise of this Warrant, an
appropriate adjustment shall be made by the Company in the aggregate number and
the Purchase Price of the Warrant Shares as is necessary to give the Holder
substantially the same rights as the Holder had immediately prior to the
occurrence of such event. In the event of any consolidation of the Company
with, or merger of the Company into, another corporation where the Company is
not the successor entity, or in the case of a sale or conveyance to another
corporation of the property of the Company in its entirety, then the Holder
shall thereafter, upon payment of the Purchase Price in effect immediately
prior to the record date for such consolidation, merger, sale or conveyance,
have the right to purchase and receive the kind and number of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale or conveyance, that would have been issued to the Holder had the Warrant
been exercised immediately prior to such event.
5. The Company hereby represents and warrants to the Holder that (a) the
Company, by all appropriate and required action, is duly authorized to issue
this Warrant and consummate all of the transactions contemplated hereby; and
(b) the Warrant Shares, have been duly reserved for issue upon exercise of the
Warrant, and when issued and delivered by the Company to the Holder, and when
paid for by the Holder in accordance with the terms and conditions hereof, will
be duly and validly issued, fully paid and nonassessable.
6. By acceptance of this Warrant, the Holder, unless this Warrant and the
Warrant Shares are the subject of an effective registration statement under the
Securities Act of 1933, as amended (the "Act"), represents and warrants to the
Company that he or it, as the case may be, is acquiring the Warrant, and shall
acquire the warrant Shares, for investment, for his or its own account and not
with a view towards the resale or distribution thereof.
7. By acceptance of this Warrant, the Holder hereby agrees that he or it, as
the case may be, shall not sell, transfer by any means or otherwise dispose of
the Warrant or the Warrant Shares acquired by him or it without registration
under the Act or any applicable state securities laws, unless (a) an exemption
from registration under the Act and said state securities laws are available
thereunder, and (b) the Holder has furnished the Company, with notice of such
proposed transfer and an opinion of the Holder's legal counsel, who shall be
acceptable to counsel to the Company, that such proposed sale or transfer is so
exempt. The holder shall be responsible for all expenses of transfer of the
Warrants (excluding, however, the expenses of any registration which are
allocated in Section 10, below), including, but not limited to, the legal
opinion required by this paragraph if the transfer is accomplished without
registration, and all fees that may be charged by the Company's transfer agent,
if at the time, holders of the Company's Common Stock are required to pay such
fees in connection with transfers of their shares of Common Stock.
8. By acceptance of this Warrant the Holder acknowledges that and, unless this
Warrant and the Warrant Shares are the subject of an effective registration
statement under the Act, each transferee of this Warrant shall acknowledge in
writing to the Company that:
(a) The Holder must bear the economic risk of the investment of the purchase of
the Warrant Shares for an indefinite period of time unless the Warrant Shares
are registered for sale under the Act or any applicable state securities laws
or an exemption for such sale is available thereunder. In that regard, it is
understood that both the Warrant and the Warrant Shares, when purchased upon
exercise of the Warrant, cannot be transferred except in compliance with the
Act or any applicable state securities laws, which generally means that, in
absence of registration of the Warrant or Warrant Shares under the Act or any
applicable state securities laws, the Holder will not be able to make any
public sales of the warrant or the Warrant Shares unless compliance is had with
said state securities laws and Rule 144 of the Securities and Exchange
Commission ("SEC"), or any successor rule or regulation of the SEC, including
holding periods, manner of sale and availability of adequate current public
information concerning the Company.
(b) The Holder has had both the opportunity to ask questions of and receive
answers from the officers and directors of the Company and all persons acting
on its behalf concerning the Warrant, the Warrant Shares and the terms and
conditions hereof and to obtain any additional information, to the extent the
Company possesses or may posses such information or can acquire it without
unreasonable effort or expense, necessary for the Holder to make the investment
in the Company contemplated hereby.
(c) The Company shall place stop transfer orders on its records of the Class A
Warrant with respect to the transfer of the Warrant and with its transfer agent
for its Common Stock against transfer of the Warrant Shares in the absence of
registration under the Act and any applicable state securities laws or an
exemption therefrom as provided herein.
(d) The certificate(s) evidencing the Warrant Shares shall, unless transferred
as set forth in Section 7 above or pursuant to a registration statement under
the Act as provided in Section 10 below, bear a legend substantially as
follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM WHERE THE
HOLDER HAS FURNISHED TO THE COMPANY AN OPINION OF COUNSEL, ACCEPTABLE
TO COUNSEL TO THE COMPANY, AS TO THE AVAILABILITY OF SUCH EXEMPTION
UNDER SAID ACT AND LAWS."
9. The Warrant may be exercised by transmitting the Warrant Share Purchase Form
annexed hereto (the "Purchase Notice'') to the Company at its principal place
of business. The Purchase Notice shall be accompanied by payment of the full
Purchase Price of the Warrant Shares as provided in Section 3 hereof, and the
Company shall issue a certificate or certificates evidencing the Warrant Shares
as soon as practicable after the notice is received. The certificate or
certificates evidencing the Warrant Shares shall be registered in the name of
the person or persons so indicated on the Purchase Notice.
10. The Holder of the Warrant and/or the Warrant Shares shall have the
registration rights set forth in this Section 10.
(a) If any majority holder (as defined below) shall give notice to the Company
at any time within the period (the "Registration Period") commencing February
9, 2000, and terminating at the expiration of the earliest to occur of (i) the
sale of all the Registrable Securities (as defined below) pursuant to a
registration statement filed in connection with the registration rights set
forth in this Warrant, (ii) the receipt by the Holder(s) of the opinion(s) from
counsel specified in paragraph (h) of this Section 10 or (iii) the end of the
Exercise Period, to the effect that such holders contemplates the transfer of
all or any part of his or their Registrable Securities under such circumstances
that a public distribution (within the meaning of the Act) of Registrable
Securities will be involved, then within sixty (60) days after receipt of such
notice, the Company shall file a registration statement pursuant to the Act, to
the end that the Registrable Securities may be sold under the Act a s promptly
as practicable thereafter, and the Company will use its best efforts to cause
such registration statement to become effective, provided that all holders
shall furnish the Company with appropriate information (relating to the
intentions of such holders, including the number of Registrable Securities to
be registered and the intended method of distribution thereof) in connection
therewith as the Company shall reasonably request in writing. The Company
shall not be required to file more than one registration statement pursuant to
this paragraph (a).
(b) Within ten (10) days after receiving any notice pursuant to paragraph (a)
above from the holders of 50% or more of the Class A Warrant and/or Warrant
Shares, the Company shall give notice to the other Holders of Registrable
Securities, advising that the Company is proceeding with such registration and
offering to include therein the Registrable Securities of such other Holders,
provided that within twenty (20) days after the date on which the Company shall
have given notice, the Holders shall notify the Company that they desire to
have their Registrable Securities included in such registration statement and
shall promptly furnish the Company with such appropriate information (relating
to the intentions of such Holders, including the number of Registrable
Securities to be registered and the intended method of distribution thereof) in
connection therewith as the Company shall reasonably request in writing.
(c) In addition to the demand registration rights set forth in paragraphs (a)
and (b) above, if, at any time during the Registration Period, the Company
proposes to register any of its securities under the Act (other than in
connection with a merger, acquisition, exchange offer, dividend reinvestment
plan or pursuant to Form S-8 or successor form) (either on its behalf or on
behalf of any selling shareholder) it shall given written notice, at least
twenty (20) days prior to the filing of each such registration statement, to
all holders of Registrable Securities which were not included in the
registration statement filed by the Company under paragraphs (a) and (b) above,
which registration statement had become effective, of its intention to do so
and shall inquire whether any of such holders desire to include any of their
Registrable Securities therein. If any Holders of the Registrable Securities
notify the Company within fifteen (15) days after and such notice of its or
their desire to include any of the Registrable Securities in such proposed
registration statement the Company shall afford the Holder or Holders of the
Registrable Securities the opportunity to have any such Registrable Securities
registered under such registration statement at the Company's cost and expense
and at no cost or expense to the Holder or Holders except for the fees of any
counsel retained by such Holder(s) and any transfer taxes or underwriting
discounts or commissions applicable to the Registrable Securities sold by him
or it pursuant thereto. If such registration involves an underwritten offering,
all Holders of Registrable Securities requesting to be included in the
Company's registration must, if requested by the Company, sell their
Registrable Securities to the underwriters selected by the Company on the same
terms and conditions as apply to the Company and other selling shareholders.
Notwithstanding the provisions of the first paragraph of this paragraph (c),
the Company shall have the right at any time after it shall have given written
notice pursuant to this paragraph (c) (irrespective of whether a written
request for inclusion of any such securities shall have been made) to elect not
to file any such proposed registration statement, or to withdraw the same after
the filing but prior to the effective date thereof.
(d) The Holders of Registrable Securities may, in accordance with paragraph
(c) or paragraph (a) above, at their option, request the registration of the
Warrants and/or the Warrant Shares in a filing made by the Company prior to the
acquisition of the Warrant Shares by the Holders upon exercise of the Warrants.
Pursuant to the terms of this Warrant, the Holders may thereafter exercise the
Warrants at any time or from time to time subsequent to the effectiveness under
the Act of the registration statement in which the Warrants or the Warrant
Shares were included. Notwithstanding anything to the contrary herein
contained, the Exercise Period for any Warrants that are the subject of a
Registration Statement filed pursuant to the provisions of paragraphs (a), (b)
or (c) of this Section 10 that has become effective under the Act shall
terminate at the earlier of the time set forth in Section 2 hereof or one
hundred eighty (180) days following the date that such Registration Statement
became effective under the Act.
(e) The Company shall not be obligated or required to effect any demand
registration of any Registrable Securities pursuant to paragraphs (a) and (b)
of this Section 10 during the period commencing on the date falling sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
ninety (90) days following the effective date of, any registration statement
pertaining to any underwritten registration initiated by the Company, for the
account of the Company, if the written request of Holders for such demand
registration pursuant to paragraphs (a) and (b) hereof shall have been received
by the Company after the Company shall have given to all Holders of Registrable
Securities a written notice stating that the Company is commencing an
underwritten registration initiated by the Company; provided, however, that the
Company will use its best efforts in good faith to cause any such registration
statement to be filed and to become effective as expeditiously as shall b e
reasonably possible.
(f) Notwithstanding the provisions of paragraph (c) of this Section 10, if in
the written opinion of the Company's managing underwriter, if any, for such
offering, the inclusion of all or a portion of the Registrable Securities
requested to be registered, when added to the securities being registered by
the Company or any selling shareholder, will exceed the maximum amount of the
Company's securities which can be marketed (i) at a price reasonably related to
their then current market value, or (ii) without otherwise materially adversely
affecting the entire offering, then the Company may exclude from such offering
all or a portion of the Registrable Securities requested to be registered as
required by the managing underwriter. If securities are proposed to be offered
for sale pursuant to such registration statement by other security holders of
the Company and the total number of securities to be offered by the holders of
the Registrable Securities and such other selling security holders is required
to be reduced pursuant to a request from the managing underwriter (which
request shall be made only for the reasons and in the manner set forth above)
the aggregate number of Registrable Securities to be offered by the Holders
pursuant to such registration statement shall equal the number which bears the
same ratio to the maximum number of securities that the underwriter believes
may be included for all the selling security holders (including the Holders) as
the original number of Registrable Securities proposed to be sold by the
Holders bears to the total original number of securities proposed to be offered
by the Holders and the other selling security holders.
(g) The following provisions of this paragraph (g) shall apply to the foregoing
paragraphs of this Section 10:
(i) The Company will use reasonable efforts to cause any
registration statement covering all or any portion of the Registrable
Securities to become effective as promptly as possible and, if any stop order
shall be issued by the Securities and Exchange Commission in connection
therewith, to use its reasonable efforts to obtain the removal of such order.
Each Holder agrees to cooperate in all respects with the Company in
effectuating the foregoing. Following the effective date of any registration
statement, the Company shall, upon the request of any Holder of Registrable
Securities covered by such registration statement, forthwith supply such
reasonable number of registration statements, preliminary prospectuses and
prospectuses meeting the requirements of the Act and other documents necessary
or incidental to the offering, as shall be reasonably requested by such Holder
to permit such Holder to make a public distribution of all Registrable
Securities. The Company will use ie efforts to qualify the Registrable
Securities for sale in the states of Florida, New York and Nevada at the
Company's expense and in such other states, at the Holders' expense, as any
Holder of Registrable Securities shall reasonable request, provided that no
such qualification will be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to service of general process or
to taxation or qualification as a foreign corporation doing business in such
jurisdiction. The obligations of the Company hereunder with respect to any
Holder's Registrable Securities are expressly conditioned on such Holder's
furnishing to the Company such appropriate information concerning the Holder,
and the Registrable Securities and the terms of the Holder's offering of such
Registrable Securities as the Company may reasonably request.
(ii) The Company shall bear the entire cost and expense of any
registration of the Registrable Securities; provided, however, that a Holder
shall be solely responsible for the fees of any counsel retained by him, her or
it and any transfer taxes or underwriting discounts or commissions applicable
to the Registrable Securities sold by him, her or it, pursuant thereto and any
additional registration fees attributable to the registration of such Holder's
Registrable Securities.
(iii) Except as to Warrants which shall expire pursuant to the
provisions of paragraph (d) of this Section 10, the Company shall use its best
efforts to maintain the effectiveness of a registration statement or
post-effective amendment registering Registrable Securities pursuant to
paragraphs (a), (b) and (c) hereof until the earlier of (A) the public sale of
all of the Registrable Securities (including all Warrant Shares issued upon
exercise of Warrants included in any such registration) registered thereunder
or (B) the expiration of none (9) months from the date such registration
statement has been deemed effective by the SEC.
(iv) Nothing in this Warrant shall require the Company to undergo
an audit other than in the ordinary course of business at the end of its fiscal
year.
(v) The Company shall indemnify and hold harmless each Holder and
each underwriter, within the meaning of the Act, who may purchase from or sell
for any such Holder any Registrable Securities, from and against any and all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in the registration statement, any other registration
statement under the Act, any post-effective amendment to the Registration
Statement or any such registration statement, or any prospectus included
therein required to be filed or furnished by reason of this Section 10 or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished or required to be furnished
in the Company by such Holder or underwriter expressly for use therein, which
indemnification shall include each person, if any, who controls any such
underwriter within the meaning of the Act and each officer, director, employee
and agent of such underwriter; provided, however, that the Company shall not be
obliged to so indemnify any such Holder or underwriter or other person referred
to above unless such Holder or underwriter or other Person. as the case may be,
shall at the same time indemnify the Company, its directors, each officer
signing the registration statement and each person, if any, who controls the
Company within the meaning of the Act, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
any prospectus required to be filed or furnished by reason of this Section 10
or caused by any omission to state therein a material fact required to be s
tated therein or necessary to make the statements therein not misleading,
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or alleged untrue statement or omission based upon information
furnished in writing to the Company by any suet Holder or underwriter expressly
for use therein.
(vi) If for any reason the indemnification provided for in the
preceding subparagraph is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim, damage,
liability or expense referred-to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party, but also the
relative fault of the indemnified party and the indemnifying party, as well as
any other relevant equitable considerations. (vii) When used in this Warrant
the term ''majority holder" means any persons who together own more than 50%
the Class A Warrants and Warrant Shares which have not previously been sold
pursuant to a registration statement filed by the Company pursuant to this
Section 10. In addition, as used herein "Registrable Securities" shall mean
the Class A Warrants and Warrant Shares which have not been sold by the Holder
thereof pursuant to a registration statement filed by the Company pursuant to
this Section 10.
(viii) Neither the giving of any notice by any Holder nor the making of
any request for prospectuses shall impose upon any such Holder making such
request any obligation to sell any Registrable Securities.
(h) The Company shall not be required to register or maintain the
registration of any Registrable Securities under the Act if, in the written
opinion of counsel for the Company, said Registrable Securities may be publicly
sold without the need for compliance with the registration provisions of the
Act and applicable state securities laws registration requirements.
(i) The Holders, upon receipt of notice from the Company, upon the
occurrence of an event which requires a post-effective amendment to the
registration statement or a supplement to the prospectus included therein,
shall promptly discontinue the sale of the Registrable Securities until they
have received copies of a supplemented or amended prospectus from the Company,
which the Company shall provide as soon as Practicable after such notice.
(j) The Registrable Securities may not be sold or otherwise disposed of
except to (A) a person who, in the opinion of counsel, is a person to whom such
securities may be legally transferred without registration and without the
delivery of a current prospectus under the Act with respect thereto and then
only against receipt of a letter from such person in which such person
represents that he is acquiring the Registrable Securities for his own account
for investment purposes and not with a view to distribution, and in which such
person agrees to comply with the provisions of this paragraph (i) with respect
to any resale or other disposition of such securities, or (B) to any person
upon delivery of a prospectus then meeting the requirements of the Act relating
to such Securities and the offering thereof for such sale or disposition.
11. All expenses, including but not limited to attorneys' fees, incurred in
connection with the preparation of this Warrant shall be borne by the Company.
12. All notices, requests, deliveries, payments, demands and other
communications which are required or permitted to be given under this Warrant
shall be in writing and shall be deemed to have been duly given when either
delivered by hand or on the second business day following mailing thereof, if
mailed in the United States by registered, certified or express mail, return
receipt requested, postage prepaid, or on the business day following delivery
to Federal Express, if addressed to the parties at the following addresses set
forth herein, or to such other address as either, or in the case of a
transferee of a holder, as such transferee, shall have specified by notice in
writing to the other. Same shall be deemed duly given hereunder when so
delivered or mailed as the case may be:
If to the Company: Continental Heritage Corporation
2140 America's Cup Circle
Las Vegas, NV 89117
If to the Holder:
13. Jurisdiction over all claims and controversies under, arising out of or
relating to the Warrant and the Warrant Shares, shall be with the courts of the
States of Nevada, Florida and Delaware and the Federal Courts situated within
such three states to which the Company and the Holder hereby consent to and
submit themselves.
14. This Warrant represents the sole and entire agreement of the parties with
respect to the subject matter hereof and may not be modified without the
written consent of the party to be charged with such modification.
ATTEST:
By:
Secretary President
Dated , 1999
WARRANT SHARE PURCHASE FORM
Pursuant to a Warrant issued by Continental Heritage Corporation, a Delaware
corporation (the "Company"), dated as of , 1999, the undersigned hereby
irrevocably elects to exercise this warrant to the extent of purchasing
shares of Common Stock, $.10 par value (the "Warrant Shares"), of the Company
as provided for therein. Payment of the full Purchase Price of the Warrant
Shares is enclosed herewith, in the form of a check made payable to the
Company. The undersigned requests that a certificate for the Warrant Shares be
issued in the name of:
----------------------
---------------------
---------------------
(Please print name, address and social security number)
Dated: ------- --- , 19
Address:
----------------
----------------
----------------
Signature:
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EXHIBIT 10.12
THE CLASS B WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON THE EXERCISE OF SUCH CLASS B WARRANTS MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS, OR (ii) AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND STATE LAWS WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF COUNSEL THAT EXEMPTIONS FROM
REGISTRATION UNDER SUCH ACT AND LAWS ARE AVAILABLE.
THE TRANSFER OR EXCHANGE OF THIS WARRANT IS RESTRICTED IN ACCORDANCE WITH THE
TERMS HEREOF.
----------
THIS CLASS B WARRANT IS ONE OF A SERIES OF CLASS B WARRANTS ISSUED BY
CONTINENTAL HERITAGE CORPORATION ENTITLING THE HOLDERS THEREOF TO PURCHASE AN
AGGREGATE OF 427,500 SHARES OF COMMON STOCK, $.10 PER VALUE, OF CONTINENTAL
HERITAGE CORPORATION.
----------
CLASS B WARRANT TO PURCHASE [ ] SHARES OF COMMON STOCK
PAR VALUE $.10 PER SHARE
OF
CONTINENTAL HERITAGE CORPORATION
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN TIME, MARCH 1, 2005
This is to certify that, for value received, (the "Holder") or its
assigns (the "Holder" or "Holders") is entitled to purchase, subject to the
provisions of this Warrant, from Continental Heritage Corporation, a Delaware
corporation (the "Company"), ( ) shares of the Company's
Common Stock, par value $.10 per share (the "Common Stock"), on the terms and
conditions set forth herein. This Warrant and any Warrant resulting from a
transfer or subdivision of this Warrant shall sometimes hereinafter be referred
to as a "Warrant" or, collectively as the "Warrants".
1. The purchase price of each share of Common Stock subject to this Warrant
(the "Warrant Shares") shall be $.3125 per share, subject to adjustment as set
forth herein (the "Purchase Price").
2. Under the terms of a certain Stock Exchange Agreement between the
Company and the holders of all of the outstanding shares of Capital Stock of
Encore International, Inc., an Oklahoma corporation, dated November 27, 1998
(the "Agreement"), the Company acquired all of the outstanding shares of Common
Stock of Encore International, Inc. in exchange for an initial issue of
5,500,000 shares of the Company's Common Stock. Under the terms of the
Agreement, the Company is obligated to issue 1,000,000 additional shares of its
Common Stock to such shareholders if the consolidated net revenues of the
Company are at least $8,000,000 for the twelve month period commencing March 1,
1999. In the event that the Company's consolidated net revenues for the twelve
(12) month period commencing March 1, 1999 are at least $8,000,000 and the
Company is required to issue the 1,000,000 shares of its Common Stock as
provided in the aforesaid Stock Exchange Agreement, then this Warrant shall
thereafter be e xercisable from time to time during the period of five (5)
years commencing on March 1, 2000, and terminating at 5:00 P.M., Eastern Time,
on February 28, 2005 (the "Exercise Period"), provided however, that the
Exercise Period shall be subject to termination earlier than February 28, 2005,
as provided in Section l0(d) hereof.
3. The Purchase Price of the Warrant Shares shall be paid in full at the
time of exercise, by cashier or certified check therefor, payable to the
Company, as hereinafter provided. The Holder shall not have any of the rights
of a shareholder with respect to the Warrant Shares as to which this Warrant
shall not have been exercised and payment made as herein provided.
4. In the event of a stock dividend, recapitalization, reorganization,
subdivision, combination, exchange or reclassification of shares of Common
Stock of the Company, or any other change in the corporate structure or shares
of Common Stock of the Company, prior to the exercise of this Warrant, an
appropriate adjustment shall be made by the Company in the aggregate number and
the Purchase Price of the Warrant Shares as is necessary to give the Holder
substantially the same rights as the Holder had immediately prior to the
occurrence of such event. In the event of any consolidation of the Company
with, or merger of the Company into, another corporation where the Company is
not the successor entity, or in the case of a sale or conveyance to another
corporation of the property of the Company in its entirety, then the Holder
shall thereafter, upon payment of the Purchase Price in effect immediately
prior to the record date for such consolidation, merger, sale or conveyance,
have the rig to purchase and receive the kind and number of shares of stock and
other securities and property receivable upon such consolidation, merger, sale
or conveyance, that would have been issued to the Holder had the Warrant been
exercised immediately prior to such event.
5. The Company hereby represents and warrants to the Holder that (a) the
Company, by all appropriate and required action, is duly authorized to issue
this Warrant and consummate all of the transactions contemplated hereby; and
(b) the Warrant Shares, have been duly reserved for issue upon exercise of the
Warrant, and when issued and delivered by the Company to the Holder, and when
paid for by the Holder in accordance with the terms and conditions hereof, will
be duly and validly issued, fully paid and nonassessable.
6. By acceptance of this Warrant, the Holder, unless this Warrant and the
Warrant Shares are the subject of an effective registration statement under the
Securities Act of 1933, as amended (the "Act"), represents and warrants to the
Company that he or it, as the case may be, is acquiring the Warrant, and shall
acquire the warrant Shares, for investment, for his or its own account and not
with a view towards the resale or distribution thereof.
7. By acceptance of this Warrant, the Holder hereby agrees that he or it, as
the case may be, shall not sell, transfer by any means or otherwise dispose of
the Warrant or the Warrant Shares acquired by him or it without registration
under the Act or any applicable state securities laws, unless (a) an exemption
from registration under the Act and said state securities laws are available
thereunder, and (b) the Holder has furnished the Company, with notice of such
proposed transfer and an opinion of the Holder's legal counsel, who shall be
acceptable to counsel to the Company, that such proposed sale or transfer is so
exempt. The holder shall be responsible for all expenses of transfer of the
Warrants (excluding, however, the expenses of any registration which are
allocated in Section 10, below), including, but not limited to, the legal
opinion required by this paragraph if the transfer is accomplished without
registration, and all fees that may be charged by the Company's transfer agen
t, if at the time, holders of the Company's Common Stock are required to pay
such fees in connection with transfers of their shares of Common Stock.
8. By acceptance of this Warrant the Holder acknowledges that and, unless
this Warrant and the Warrant Shares are the subject of an effective
registration statement under the Act, each transferee of this Warrant shall
acknowledge in writing to the Company that:
(a) The Holder must bear the economic risk of the investment of the
purchase of the Warrant Shares for an indefinite period of time unless the
Warrant Shares are registered for sale under the Act or any applicable state
securities laws or an exemption for such sale is available thereunder. In that
regard, it is understood that both the Warrant and the Warrant Shares, when
purchased upon exercise of the Warrant, cannot be transferred except in
compliance with the Act or any applicable state securities laws, which
generally means that, in absence of registration of the Warrant or Warrant
Shares under the Act or any applicable state securities laws, the Holder will
not be able to make any public sales of the warrant or the Warrant Shares
unless compliance is had with said state securities laws and Rule 144 of the
Securities and Exchange Commission ("SEC"), or any successor rule or regulation
of the SEC, including holding periods, manner of sale and availability of
adequate current p information concerning the Company.
(b) The Holder has had both the opportunity to ask questions of and
receive answers from the officers and directors of the Company and all persons
acting on its behalf concerning the Warrant, the Warrant Shares and the terms
and conditions hereof and to obtain any additional information, to the extent
the Company possesses or may posses such information or can acquire it without
unreasonable effort or expense, necessary for the Holder to make the investment
in the Company contemplated hereby.
(c) The Company shall place stop transfer orders on its records of the
Class A Warrant with respect to the transfer of the Warrant and with its
transfer agent for its Common Stock against transfer of the Warrant Shares in
the absence of registration under the Act and any applicable state securities
laws or an exemption therefrom as provided herein.
(d) The certificate(s) evidencing the Warrant Shares shall, unless
transferred as set forth in Section 7 above or pursuant to a registration
statement under the Act as provided in Section 10 below, bear a legend
substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS. THE SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM WHERE THE HOLDER HAS FURNISHED TO THE COMPANY AN OPINION
OF COUNSEL, ACCEPTABLE TO COUNSEL TO THE COMPANY, AS TO THE
AVAILABILITY OF SUCH EXEMPTION UNDER SAID ACT AND LAWS.
9. The Warrant may be exercised by transmitting the Warrant Share Purchase
Form annexed hereto (the "Purchase Notice'') to the Company at its principal
place of business. The Purchase Notice shall be accompanied by payment of the
full Purchase Price of the Warrant Shares as provided in Section 3 hereof, and
the Company shall issue a certificate or certificates evidencing the Warrant
Shares as soon as practicable after the notice is received. The certificate or
certificates evidencing the Warrant Shares shall be registered in the name of
the person or persons so indicated on the Purchase Notice.
10. The Holder of the Warrant and/or the Warrant Shares shall have the
registration rights set forth in this Section 10.
(a) If any majority holder (as defined below) shall give notice to the Company
at any time within the period (the "Registration Period") commencing March 1,
2001, and terminating at the expiration of the earliest to occur of (i) the
sale of all the Registrable Securities (as defined below) pursuant to a
registration statement filed in connection with the registration rights set
forth in this Warrant, (ii) the receipt by the Holder(s) of the opinion(s) from
counsel specified in paragraph (h) of this Section 10 or (iii) the end of the
Exercise Period, to the effect that such holders contemplates the transfer of
all or any part of his or their Registrable Securities under such circumstances
that a public distribution (within the meaning of the Act) of Registrable
Securities will be involved, then within sixty (60) days after receipt of such
notice, the Company shall file a registration statement pursuant to the Act, to
the end that the Registrable Securities may be sold under the Act as p romptly
as practicable thereafter, and the Company will use its best efforts to cause
such registration statement to become effective, provided that all holders
shall furnish the Company with appropriate information (relating to the
intentions of such holders, including the number of Registrable Securities to
be registered and the intended method of distribution thereof) in connection
therewith as the Company shall reasonably request in writing. The Company
shall not be required to file more than one registration statement pursuant to
this paragraph (a).
(b) Within ten (10) days after receiving any notice pursuant to paragraph (a)
above from a majority holder, the Company shall give notice to the other
Holders of Registrable Securities, advising that the Company is proceeding with
such registration and offering to include therein the Registrable Securities of
such other Holders, provided that within twenty (20) days after the date on
which the Company shall have given notice, the Holders shall notify the Company
that they desire to have their Registrable Securities included in such
registration statement and shall promptly furnish the Company with such
appropriate information (relating to the intentions of such Holders, including
the number of Registrable Securities to be registered and the intended method
of distribution thereof) in connection therewith as the Company shall
reasonably request in writing.
(c) In addition to the demand registration rights set forth in paragraphs (a)
and (b) above, if, at any time during the Registration Period, the Company
proposes to register any of its securities under the Act (other than in
connection with a merger, acquisition, exchange offer, dividend reinvestment
plan or pursuant to Form S-8 or successor form) (either on its behalf or on
behalf of any selling shareholder) it shall given written notice, at least
twenty (20) days prior to the filing of each such registration statement, to
all holders of Registrable Securities which were not included in the
registration statement filed by the Company under paragraphs (a) and (b) above,
which registration statement had become effective, of its intention to do so
and shall inquire whether any of such holders desire to include any of their
Registrable Securities therein. If any Holders of the Registrable Securities
notify the Company within fifteen (15) days after and such notice of its or
their desire t o include any of the Registrable Securities in such proposed
registration statement the Company shall afford the Holder or Holders of the
Registrable Securities the opportunity to have any such Registrable Securities
registered under such registration statement at the Company's cost and expense
and at no cost or expense to the Holder or Holders except for the fees of any
counsel retained by such Holder(s) and any transfer taxes or underwriting
discounts or commissions applicable to the Registrable Securities sold by him
or it pursuant thereto. If such registration involves an underwritten offering,
all Holders of Registrable Securities requesting to be included in the
Company's registration must, if requested by the Company, sell their
Registrable Securities to the underwriters selected by the Company on the same
terms and conditions as apply to the Company and other selling shareholders.
Notwithstanding the provisions of the first paragraph of this paragraph (c),
the Company shall have the right at any time after it shall have given written
notice pursuant to this paragraph (c) (irrespective of whether a written
request for inclusion of any such securities shall have been made) to elect not
to file any such proposed registration statement, or to withdraw the same after
the filing but prior to the effective date thereof.
(d) The Holders of Registrable Securities may, in accordance with paragraph (c)
or paragraph (a) above, at their option, request the registration of the
Warrants and/or the Warrant Shares in a filing made by the Company prior to the
acquisition of the Warrant Shares by the Holders upon exercise of the Warrants.
Pursuant to the terms of this Warrant, the Holders may thereafter exercise the
Warrants at any time or from time to time subsequent to the effectiveness under
the Act of the registration statement in which the Warrants or the Warrant
Shares were included. Notwithstanding anything to the contrary herein
contained, the Exercise Period for any Warrants that are the subject of a
Registration Statement filed pursuant to the provisions of paragraphs (a), (b)
or (c) of this Section 10 that has become effective under the Act shall
terminate at the earlier of the time set forth in Section 2 hereof or one
hundred eighty (180) days following the date that such Registration Statement
became effective under the Act.
(e) The Company shall not be obligated or required to effect any demand
registration of any Registrable Securities pursuant to paragraphs (a) and (b)
of this Section 10 during the period commencing on the date falling sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
ninety (90) days following the effective date of, any registration statement
pertaining to any underwritten registration initiated by the Company, for the
account of the Company, if the written request of Holders for such demand
registration pursuant to paragraphs (a) and (b) hereof shall have been received
by the Company after the Company shall have given to all Holders of Registrable
Securities a written notice stating that the Company is commencing an
underwritten registration initiated by the Company; provided, however, that the
Company will use its best efforts in good faith to cause any such registration
statement to be filed and to become effective as expeditiously as shall b e
reasonably possible.
(f) Notwithstanding the provisions of paragraph (c) of this Section 10, if in
the written opinion of the Company's managing underwriter, if any, for such
offering, the inclusion of all or a portion of the Registrable Securities
requested to be registered, when added to the securities being registered by
the Company or any selling shareholder, will exceed the maximum amount of the
Company's securities which can be marketed (i) at a price reasonably related to
their then current market value, or (ii) without otherwise materially adversely
affecting the entire offering, then the Company may exclude from such offering
all or a portion of the Registrable Securities requested to be registered as
required by the managing underwriter. If securities are proposed to be offered
for sale pursuant to such registration statement by other security holders of
the Company and the total number of securities to be offered by the holders of
the Registrable Securities and such other selling security holders is required
to be reduced pursuant to a request from the managing underwriter (which
request shall be made only for the reasons and in the manner set forth above)
the aggregate number of Registrable Securities to be offered by the Holders
pursuant to such registration statement shall equal the number which bears the
same ratio to the maximum number of securities that the underwriter believes
may be included for all the selling security holders (including the Holders) as
the original number of Registrable Securities proposed to be sold by the
Holders bears to the total original number of securities proposed to be offered
by the Holders and the other selling security holders.
(g) The following provisions of this paragraph (g) shall apply to the foregoing
paragraphs of this Section 10:
(i) The Company will use reasonable efforts to cause any registration
statement covering all or any portion of the Registrable Securities to become
effective as promptly as possible and, if any stop order shall be issued by the
Securities and Exchange Commission in connection therewith, to use its
reasonable efforts to obtain the removal of such order. Each Holder agrees to
cooperate in all respects with the Company in effectuating the foregoing.
Following the effective date of any registration statement, the Company shall,
upon the request of any Holder of Registrable Securities covered by such
registration statement, forthwith supply such reasonable number of registration
statements, preliminary prospectuses and prospectuses meeting the requirements
of the Act and other documents necessary or incidental to the offering, as
shall be reasonably requested by such Holder to permit such Holder to make a
public distribution of all Registrable Securities. The Company will use its
reason efforts to qualify the Registrable Securities for sale in the states of
Florida, New York and Nevada at the Company's expense and in such other states,
at the Holders' expense, as any Holder of Registrable Securities shall
reasonable request, provided that no such qualification will be required in any
jurisdiction where, solely as a result thereof, the Company would be subject to
service of general process or to taxation or qualification as a foreign
corporation doing business in such jurisdiction. The obligations of the Company
hereunder with respect to any Holder's Registrable Securities are expressly
conditioned on such Holder's furnishing to the Company such appropriate
information concerning the Holder, and the Registrable Securities and the terms
of the Holder's offering of such Registrable Securities as the Company may
reasonably request.
(ii) The Company shall bear the entire cost and expense of any registration
of the Registrable Securities; provided, however, that a Holder shall be solely
responsible for the fees of any counsel retained by him, her or it and any
transfer taxes or underwriting discounts or commissions applicable to the
Registrable Securities sold by him, her or it, pursuant thereto and any
additional registration fees attributable to the registration of such Holder's
Registrable Securities.
(iii) Except as to Warrants which shall expire pursuant to the provisions of
paragraph (d) of this Section 10, the Company shall use its best efforts to
maintain the effectiveness of a registration statement or post-effective
amendment registering Registrable Securities pursuant to paragraphs (a), (b)
and (c) hereof until the earlier of (A) the public sale of all of the
Registrable Securities (including all Warrant Shares issued upon exercise of
Warrants included in any such registration) registered thereunder or (B) the
expiration of none (9) months from the date such registration statement has
been deemed effective by the SEC.
(iv) Nothing in this Warrant shall require the Company to undergo an audit
other than in the ordinary course of business at the end of its fiscal year.
(v) The Company shall indemnify and hold harmless each Holder and each
underwriter, within the meaning of the Act, who may purchase from or sell for
any such Holder any Registrable Securities, from and against any and all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in the registration statement, any other registration
statement under the Act, any post-effective amendment to the Registration
Statement or any such registration statement, or any prospectus included
therein required to be filed or furnished by reason of this Section 10 or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished or required to be furnished
in writing the Company by such Holder or underwriter expressly for use therein,
which indemnification shall include each person, if any, who controls any such
underwriter within the meaning of the Act and each officer, director, employee
and agent of such underwriter; provided, however, that the Company shall not be
obliged to so indemnify any such Holder or underwriter or other person referred
to above unless such Holder or underwriter or other Person. as the case may be,
shall at the same time indemnify the Company, its directors, each officer
signing the registration statement and each person, if any, who controls the
Company within the meaning of the Act, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
any prospectus required to be filed or furnished by reason of this Section 10
or caused by any omission to state therein a material fact required to be s
tated therein or necessary to make the statements therein not misleading,
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or alleged untrue statement or omission based upon information
furnished in writing to the Company by any suet Holder or underwriter expressly
for use therein.
(vi) If for any reason the indemnification provided for in the preceding
subparagraph is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, claim, damage, liability or
expense referred-to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnified party, but also the relative
fault of the indemnified party and the indemnifying party, as well as any other
relevant equitable considerations.
(vii) When used in this Warrant the term ''majority holder" means any persons
who together own more than 50% of the Class B Warrants and any Class C Warrants
of the Company then outstanding and Warrant Shares then issuable upon exercise
of either the Class B or Class C Warrants of the Company which have not
previously been sold pursuant to a registration statement filed by the Company
pursuant to this Section 10. In addition, as used herein "Registrable
Securities" shall mean the Class B Warrants and the Class C Warrants and
Warrant Shares issuable upon exercise of either of such class of Warrants which
have not been sold by the Holder thereof pursuant to a registration statement
filed by the Company pursuant to this Section 10.
(viii) Neither the giving of any notice by any Holder nor the making of any
request for prospectuses shall impose upon any such Holder making such request
any obligation to sell any Registrable Securities.
(h) The Company shall not be required to register or maintain the registration
of any Registrable Securities under the Act if, in the written opinion of
counsel for the Company, said Registrable Securities may be publicly sold
without the need for compliance with the registration provisions of the Act and
applicable state securities laws registration requirements.
(i) The Holders, upon receipt of notice from the Company, upon the occurrence
of an event which requires a post-effective amendment to the registration
statement or a supplement to the prospectus included therein, shall promptly
discontinue the sale of the Registrable Securities until they have received
copies of a supplemented or amended prospectus from the Company, which the
Company shall provide as soon as Practicable after such notice.
(j) The Registrable Securities may not be sold or otherwise disposed of except
to (A) a person who, in the opinion of counsel, is a person to whom such
securities may be legally transferred without registration and without the
delivery of a current prospectus under the Act with respect thereto and then
only against receipt of a letter from such person in which such person
represents that he is acquiring the Registrable Securities for his own account
for investment purposes and not with a view to distribution, and in which such
person agrees to comply with the provisions of this paragraph (i) with respect
to any resale or other disposition of such securities, or (B) to any person
upon delivery of a prospectus then meeting the requirements of the Act relating
to such Securities and the offering thereof for such sale or disposition.
11. All expenses, including but not limited to attorneys' fees, incurred in
connection with the preparation of this Warrant shall be borne by the Company.
12. All notices, requests, deliveries, payments, demands and other
communications which are required or permitted to be given under this Warrant
shall be in writing and shall be deemed to have been duly given when either
delivered by hand or on the second business day following mailing thereof, if
mailed in the United States by registered, certified or express mail, return
receipt requested, postage prepaid, or on the business day following delivery
to Federal Express, if addressed to the parties at the following addresses set
forth herein, or to such other address as either, or in the case of a
transferee of a holder, as such transferee, shall have specified by notice in
writing to the other. Same shall be deemed duly given hereunder when so
delivered or mailed as the case may be:
If to the Company: Continental Heritage Corporation
If to the Holder:
13. Jurisdiction over all claims and controversies under, arising out of or
relating to the Warrant and the Warrant Shares, shall be with the courts of the
States of Nevada, Florida and Delaware and the Federal Courts situated within
such three states to which the Company and the Holder hereby consent to and
submit themselves.
14. This Warrant represents the sole and entire agreement of the parties with
respect to the subject matter hereof and may not be modified without the
written consent of the party to be charged with such modification.
ATTEST:
By:
Secretary President
Dated [ ], 1999
WARRANT SHARE PURCHASE FORM
Pursuant to a Warrant issued by Continental Heritage Corporation, a Delaware
corporation (the "Company"), dated as of , 1999, the undersigned hereby
irrevocably elects to exercise this warrant to the extent of purchasing
shares of Common Stock, $.10 par value (the "Warrant Shares"), of the Company
as provided for therein.
Payment of the full Purchase Price of the Warrant Shares is enclosed herewith,
in the form of a check made payable to the Company. The undersigned requests
that a certificate for the Warrant Shares be issued in the name of:
------------------
------------------
------------------
(Please print name, address and social security number)
Dated: , 19
Address:
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Signature:
EXHIBIT 10.13
THE CLASS C WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON THE EXERCISE OF SUCH CLASS C WARRANTS MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS, OR (ii) AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND STATE LAWS WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF COUNSEL THAT EXEMPTIONS FROM
REGISTRATION UNDER SUCH ACT AND LAWS ARE AVAILABLE.
THE TRANSFER OR EXCHANGE OF THIS WARRANT IS RESTRICTED IN ACCORDANCE WITH THE
TERMS HEREOF.
-------------------
THIS CLASS C WARRANT IS ONE OF A SERIES OF CLASS C WARRANTS ISSUED BY
CONTINENTAL HERITAGE CORPORATION ENTITLING THE HOLDERS THEREOF TO PURCHASE AN
AGGREGATE OF 427,500 SHARES OF COMMON STOCK, $.10 PER VALUE, OF CONTINENTAL
HERITAGE CORPORATION.
-------------------
CLASS C WARRANT TO PURCHASE [ ] SHARES OF COMMON STOCK
PAR VALUE $.10 PER SHARE
OF
CONTINENTAL HERITAGE CORPORATION
EXERCISABLE ON OR BEFORE
5:00 P.M.,EASTERN TIME, MARCH 1, 2006
This is to certify that, for value received, (the "Holder") or its
assigns (the "Holder" or "Holders") is entitled to purchase, subject to the
provisions of this Warrant, from Continental Heritage Corporation, a Delaware
corporation (the "Company"), ( ) shares of the Company's
Common Stock, par value $.10 per share (the "Common Stock"), on the terms and
conditions set forth herein. This Warrant and any Warrant resulting from a
transfer or subdivision of this Warrant shall sometimes hereinafter be referred
to as a "Warrant" or, collectively as the "Warrants".
1. The purchase price of each share of Common Stock subject to this Warrant
(the "Warrant Shares") shall be $.3125 per share, subject to adjustment as set
forth herein (the "Purchase Price").
2. Under the terms of a certain Stock Exchange Agreement between the Company
and the holders of all of the outstanding shares of Capital Stock of Encore
International, Inc., an Oklahoma corporation, dated November 27, 1998 (the
"Agreement"), the Company acquired all of the outstanding shares of Common
Stock of Encore International, Inc. in exchange for an initial issue of
5,500,000 shares of the Company's Common Stock. Under the terms of the
Agreement, the Company is obligated to issue 1,000,000 additional shares of its
Common Stock to such shareholders if the consolidated net revenues of the
Company are at least $15,000,000 for the twelve month period commencing March
1, 2000. In the event that the Company's consolidated net revenues for the
twelve (12) month period commencing March 1, 2000 are at least $15,000,000 and
the Company is required to issue the 1,000,000 shares of its Common Stock as
provided in the aforesaid Stock Exchange Agreement, then this Warrant shall
thereafter be exercisable from time to time during the period of five (5) years
commencing on March 1, 2001, and terminating at 5:00 P.M., Eastern Time, on
February 28, 2006 (the "Exercise Period"), provided however, that the Exercise
Period shall be subject to termination earlier than February 28, 2006, as
provided in Section l0(d) hereof.
3. The Purchase Price of the Warrant Shares shall be paid in full at the time
of exercise, by cashier or certified check therefor, payable to the Company, as
hereinafter provided. The Holder shall not have any of the rights of a
shareholder with respect to the Warrant Shares as to which this Warrant shall
not have been exercised and payment made as herein provided.
4. In the event of a stock dividend, recapitalization, reorganization,
subdivision, combination, exchange or reclassification of shares of Common
Stock of the Company, or any other change in the corporate structure or shares
of Common Stock of the Company, prior to the exercise of this Warrant, an
appropriate adjustment shall be made by the Company in the aggregate number and
the Purchase Price of the Warrant Shares as is necessary to give the Holder
substantially the same rights as the Holder had immediately prior to the
occurrence of such event. In the event of any consolidation of the Company
with, or merger of the Company into, another corporation where the Company is
not the successor entity, or in the case of a sale or conveyance to another
corporation of the property of the Company in its entirety, then the Holder
shall thereafter, upon payment of the Purchase Price in effect immediately
prior to the record date for such consolidation, merger, sale or conveyance,
have the right to purchase and receive the kind and number of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale or conveyance, that would have been issued to the Holder had the Warrant
been exercised immediately prior to such event.
5. The Company hereby represents and warrants to the Holder that (a) the
Company, by all appropriate and required action, is duly authorized to issue
this Warrant and consummate all of the transactions contemplated hereby; and
(b) the Warrant Shares, have been duly reserved for issue upon exercise of the
Warrant, and when issued and delivered by the Company to the Holder, and when
paid for by the Holder in accordance with the terms and conditions hereof, will
be duly and validly issued, fully paid and nonassessable.
6. By acceptance of this Warrant, the Holder, unless this Warrant and the
Warrant Shares are the subject of an effective registration statement under the
Securities Act of 1933, as amended (the "Act"), represents and warrants to the
Company that he or it, as the case may be, is acquiring the Warrant, and shall
acquire the warrant Shares, for investment, for his or its own account and not
with a view towards the resale or distribution thereof.
7. By acceptance of this Warrant, the Holder hereby agrees that he or it, as
the case may be, shall not sell, transfer by any means or otherwise dispose of
the Warrant or the Warrant Shares acquired by him or it without registration
under the Act or any applicable state securities laws, unless (a) an exemption
from registration under the Act and said state securities laws are available
thereunder, and (b) the Holder has furnished the Company, with notice of such
proposed transfer and an opinion of the Holder's legal counsel, who shall be
acceptable to counsel to the Company, that such proposed sale or transfer is so
exempt. The holder shall be responsible for all expenses of transfer of the
Warrants (excluding, however, the expenses of any registration which are
allocated in Section 10, below), including, but not limited to, the legal
opinion required by this paragraph if the transfer is accomplished without
registration, and all fees that may be charged by the Company's transfer agen
t, if at the time, holders of the Company's Common Stock are required to pay
such fees in connection with transfers of their shares of Common Stock.
8. By acceptance of this Warrant the Holder acknowledges that and, unless this
Warrant and the Warrant Shares are the subject of an effective registration
statement under the Act, each transferee of this Warrant shall acknowledge in
writing to the Company that:
(a) The Holder must bear the economic risk of the investment of the purchase of
the Warrant Shares for an indefinite period of time unless the Warrant Shares
are registered for sale under the Act or any applicable state securities laws
or an exemption for such sale is available thereunder. In that regard, it is
understood that both the Warrant and the Warrant Shares, when purchased upon
exercise of the Warrant, cannot be transferred except in compliance with the
Act or any applicable state securities laws, which generally means that, in
absence of registration of the Warrant or Warrant Shares under the Act or any
applicable state securities laws, the Holder will not be able to make any
public sales of the warrant or the Warrant Shares unless compliance is had with
said state securities laws and Rule 144 of the Securities and Exchange
Commission ("SEC"), or any successor rule or regulation of the SEC, including
holding periods, manner of sale and availability of adequate current public
information concerning the Company.
(b) The Holder has had both the opportunity to ask questions of and receive
answers from the officers and directors of the Company and all persons acting
on its behalf concerning the Warrant, the Warrant Shares and the terms and
conditions hereof and to obtain any additional information, to the extent the
Company possesses or may posses such information or can acquire it without
unreasonable effort or expense, necessary for the Holder to make the investment
in the Company contemplated hereby.
(c) The Company shall place stop transfer orders on its records of the Class A
Warrant with respect to the transfer of the Warrant and with its transfer agent
for its Common Stock against transfer of the Warrant Shares in the absence of
registration under the Act and any applicable state securities laws or an
exemption therefrom as provided herein.
(d) The certificate(s) evidencing the Warrant Shares shall, unless transferred
as set forth in Section 7 above or pursuant to a registration statement under
the Act as provided in Section 10 below, bear a legend substantially as
follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM WHERE THE
HOLDER HAS FURNISHED TO THE COMPANY AN OPINION OF COUNSEL, ACCEPTABLE
TO COUNSEL TO THE COMPANY, AS TO THE AVAILABILITY OF SUCH EXEMPTION
UNDER SAID ACT AND LAWS.
9. The Warrant may be exercised by transmitting the Warrant Share Purchase Form
annexed hereto (the "Purchase Notice'') to the Company at its principal place
of business. The Purchase Notice shall be accompanied by payment of the full
Purchase Price of the Warrant Shares as provided in Section 3 hereof, and the
Company shall issue a certificate or certificates evidencing the Warrant Shares
as soon as practicable after the notice is received. The certificate or
certificates evidencing the Warrant Shares shall be registered in the name of
the person or persons so indicated on the Purchase Notice.
10. The Holder of the Warrant and/or the Warrant Shares shall have the
registration rights set forth in this Section 10.
(a) If any majority holder (as defined below) shall give notice to the Company
at any time within the period (the "Registration Period") commencing March 1,
2001, and terminating at the expiration of the earliest to occur of (i) the
sale of all the Registrable Securities (as defined below) pursuant to a
registration statement filed in connection with the registration rights set
forth in this Warrant, (ii) the receipt by the Holder(s) of the opinion(s) from
counsel specified in paragraph (h) of this Section 10 or (iii) the end of the
Exercise Period, to the effect that such holders contemplates the transfer of
all or any part of his or their Registrable Securities under such circumstances
that a public distribution (within the meaning of the Act) of Registrable
Securities will be involved, then within sixty (60) days after receipt of such
notice, the Company shall file a registration statement pursuant to the Act, to
the end that the Registrable Securities may be sold under the Act as p romptly
as practicable thereafter, and the Company will use its best efforts to cause
such registration statement to become effective, provided that all holders
shall furnish the Company with appropriate information (relating to the
intentions of such holders, including the number of Registrable Securities to
be registered and the intended method of distribution thereof) in connection
therewith as the Company shall reasonably request in writing. The Company
shall not be required to file more than one registration statement pursuant to
this paragraph (a).
(b) Within ten (10) days after receiving any notice pursuant to paragraph (a)
above from a majority holder, the Company shall give notice to the other
Holders of Registrable Securities, advising that the Company is proceeding with
such registration and offering to include therein the Registrable Securities of
such other Holders, provided that within twenty (20) days after the date on
which the Company shall have given notice, the Holders shall notify the Company
that they desire to have their Registrable Securities included in such
registration statement and shall promptly furnish the Company with such
appropriate information (relating to the intentions of such Holders, including
the number of Registrable Securities to be registered and the intended method
of distribution thereof) in connection therewith as the Company shall
reasonably request in writing.
(c) In addition to the demand registration rights set forth in paragraphs (a)
and (b) above, if, at any time during the Registration Period, the Company
proposes to register any of its securities under the Act (other than in
connection with a merger, acquisition, exchange offer, dividend reinvestment
plan or pursuant to Form S-8 or successor form) (either on its behalf or on
behalf of any selling shareholder) it shall given written notice, at least
twenty (20) days prior to the filing of each such registration statement, to
all holders of Registrable Securities which were not included in the
registration statement filed by the Company under paragraphs (a) and (b) above,
which registration statement had become effective, of its intention to do so
and shall inquire whether any of such holders desire to include any of their
Registrable Securities therein. If any Holders of the Registrable Securities
notify the Company within fifteen (15) days after and such notice of its or
their desire t include any of the Registrable Securities in such proposed
registration statement the Company shall afford the Holder or Holders of the
Registrable Securities the opportunity to have any such Registrable Securities
registered under such registration statement at the Company's cost and expense
and at no cost or expense to the Holder or Holders except for the fees of any
counsel retained by such Holder(s) and any transfer taxes or underwriting
discounts or commissions applicable to the Registrable Securities sold by him
or it pursuant thereto. If such registration involves an underwritten offering,
all Holders of Registrable Securities requesting to be included in the
Company's registration must, if requested by the Company, sell their
Registrable Securities to the underwriters selected by the Company on the same
terms and conditions as apply to the Company and other selling shareholders.
Notwithstanding the provisions of the first paragraph of this paragraph (c),
the Company shall have the right at any time after it shall have given written
notice pursuant to this paragraph (c) (irrespective of whether a written
request for inclusion of any such securities shall have been made) to elect not
to file any such proposed registration statement, or to withdraw the same after
the filing but prior to the effective date thereof.
(d) The Holders of Registrable Securities may, in accordance with paragraph (c)
or paragraph (a) above, at their option, request the registration of the
Warrants and/or the Warrant Shares in a filing made by the Company prior to the
acquisition of the Warrant Shares by the Holders upon exercise of the Warrants.
Pursuant to the terms of this Warrant, the Holders may thereafter exercise the
Warrants at any time or from time to time subsequent to the effectiveness under
the Act of the registration statement in which the Warrants or the Warrant
Shares were included. Notwithstanding anything to the contrary herein
contained, the Exercise Period for any Warrants that are the subject of a
Registration Statement filed pursuant to the provisions of paragraphs (a), (b)
or (c) of this Section 10 that has become effective under the Act shall
terminate at the earlier of the time set forth in Section 2 hereof or one
hundred eighty (180) days following the date that such Registration Statement
became effective under the Act.
(e) The Company shall not be obligated or required to effect any demand
registration of any Registrable Securities pursuant to paragraphs (a) and (b)
of this Section 10 during the period commencing on the date falling sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
ninety (90) days following the effective date of, any registration statement
pertaining to any underwritten registration initiated by the Company, for the
account of the Company, if the written request of Holders for such demand
registration pursuant to paragraphs (a) and (b) hereof shall have been received
by the Company after the Company shall have given to all Holders of Registrable
Securities a written notice stating that the Company is commencing an
underwritten registration initiated by the Company; provided, however, that the
Company will use its best efforts in good faith to cause any such registration
statement to be filed and to become effective as expeditiously as shall b e
reasonably possible.
(f) Notwithstanding the provisions of paragraph (c) of this Section 10, if in
the written opinion of the Company's managing underwriter, if any, for such
offering, the inclusion of all or a portion of the Registrable Securities
requested to be registered, when added to the securities being registered by
the Company or any selling shareholder, will exceed the maximum amount of the
Company's securities which can be marketed (i) at a price reasonably related to
their then current market value, or (ii) without otherwise materially adversely
affecting the entire offering, then the Company may exclude from such offering
all or a portion of the Registrable Securities requested to be registered as
required by the managing underwriter. If securities are proposed to be offered
for sale pursuant to such registration statement by other security holders of
the Company and the total number of securities to be offered by the holders of
the Registrable Securities and such other selling security holders is required
to be reduced pursuant to a request from the managing underwriter (which
request shall be made only for the reasons and in the manner set forth above)
the aggregate number of Registrable Securities to be offered by the Holders
pursuant to such registration statement shall equal the number which bears the
same ratio to the maximum number of securities that the underwriter believes
may be included for all the selling security holders (including the Holders) as
the original number of Registrable Securities proposed to be sold by the
Holders bears to the total original number of securities proposed to be offered
by the Holders and the other selling security holders.
(g) The following provisions of this paragraph (g) shall apply to the foregoing
paragraphs of this Section 10:
(i) The Company will use reasonable efforts to cause any registration statement
covering all or any portion of the Registrable Securities to become effective
as promptly as possible and, if any stop order shall be issued by the
Securities and Exchange Commission in connection therewith, to use its
reasonable efforts to obtain the removal of such order. Each Holder agrees to
cooperate in all respects with the Company in effectuating the foregoing.
Following the effective date of any registration statement, the Company shall,
upon the request of any Holder of Registrable Securities covered by such
registration statement, forthwith supply such reasonable number of registration
statements, preliminary prospectuses and prospectuses meeting the requirements
of the Act and other documents necessary or incidental to the offering, as
shall be reasonably requested by such Holder to permit such Holder to make a
public distribution of all Registrable Securities. The Company will use its
reasonable efforts to qualify the Registrable Securities for sale in the states
of Florida, New York and Nevada at the Company's expense and in such other
states, at the Holders' expense, as any Holder of Registrable Securities shall
reasonable request, provided that no such qualification will be required in any
jurisdiction where, solely as a result thereof, the Company would be subject to
service of general process or to taxation or qualification as a foreign
corporation doing business in such jurisdiction. The obligations of the Company
hereunder with respect to any Holder's Registrable Securities are expressly
conditioned on such Holder's furnishing to the Company such appropriate
information concerning the Holder, and the Registrable Securities and the terms
of the Holder's offering of such Registrable Securities as the Company may
reasonably request.
(ii) The Company shall bear the entire cost and expense of any registration of
the Registrable Securities; provided, however, that a Holder shall be solely
responsible for the fees of any counsel retained by him, her or it and any
transfer taxes or underwriting discounts or commissions applicable to the
Registrable Securities sold by him, her or it, pursuant thereto and any
additional registration fees attributable to the registration of such Holder's
Registrable Securities.
(iii) Except as to Warrants which shall expire pursuant to the provisions of
paragraph (d) of this Section 10, the Company shall use its best efforts to
maintain the effectiveness of a registration statement or post-effective
amendment registering Registrable Securities pursuant to paragraphs (a), (b)
and (c) hereof until the earlier of (A) the public sale of all of the
Registrable Securities (including all Warrant Shares issued upon exercise of
Warrants included in any such registration) registered thereunder or (B) the
expiration of none (9) months from the date such registration statement has
been deemed effective by the SEC.
(iv) Nothing in this Warrant shall require the Company to undergo an audit
other than in the ordinary course of business at the end of its fiscal year.
(v) The Company shall indemnify and hold harmless each Holder and each
underwriter, within the meaning of the Act, who may purchase from or sell for
any such Holder any Registrable Securities, from and against any and all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in the registration statement, any other registration
statement under the Act, any post-effective amendment to the Registration
Statement or any such registration statement, or any prospectus included
therein required to be filed or furnished by reason of this Section 10 or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished or required to be furnished
in writing to the Company by such Holder or underwriter expressly for use
therein, which indemnification shall include each person, if any, who controls
any such underwriter within the meaning of the Act and each officer, director,
employee and agent of such underwriter; provided, however, that the Company
shall not be obliged to so indemnify any such Holder or underwriter or other
person referred to above unless such Holder or underwriter or other Person. as
the case may be, shall at the same time indemnify the Company, its directors,
each officer signing the registration statement and each person, if any, who
controls the Company within the meaning of the Act, from and against any and
all losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or any prospectus required to be filed or furnished by reason of this
Section 10 or caused by any omission to state therein a material fact required
to be s tated therein or necessary to make the statements therein not
misleading, insofar as such losses, claims, damages or liabilities are caused
by any untrue statement or alleged untrue statement or omission based upon
information furnished in writing to the Company by any suet Holder or
underwriter expressly for use therein.
(vi) If for any reason the indemnification provided for in the preceding
subparagraph is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, claim, damage, liability or
expense referred-to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnified party, but also the relative
fault of the indemnified party and the indemnifying party, as well as any other
relevant equitable considerations.
(vii) When used in this Warrant the term ''majority holder" means any persons
who together own more than 50% of the Class C Warrants and any Class B Warrants
of the Company then outstanding and Warrant Shares then issuable upon exercise
of either the Class C or Class B Warrants of the Company which have not
previously been sold pursuant to a registration statement filed by the Company
pursuant to this Section 10. In addition, as used herein "Registrable
Securities" shall mean the Class C Warrants and the Class B Warrants and
Warrant Shares issuable upon exercise of either of such class of Warrants which
have not been sold by the Holder thereof pursuant to a registration statement
filed by the Company pursuant to this Section 10.
(viii) Neither the giving of any notice by any Holder nor the making of any
request for prospectuses shall impose upon any such Holder making such request
any obligation to sell any Registrable Securities.
(h) The Company shall not be required to register or maintain the registration
of any Registrable Securities under the Act if, in the written opinion of
counsel for the Company, said Registrable Securities may be publicly sold
without the need for compliance with the registration provisions of the Act and
applicable state securities laws registration requirements.
(i) The Holders, upon receipt of notice from the Company, upon the occurrence
of an event which requires a post-effective amendment to the registration
statement or a supplement to the prospectus included therein, shall promptly
discontinue the sale of the Registrable Securities until they have received
copies of a supplemented or amended prospectus from the Company, which the
Company shall provide as soon as Practicable after such notice.
(j) The Registrable Securities may not be sold or otherwise disposed of except
to (A) a person who, in the opinion of counsel, is a person to whom such
securities may be legally transferred without registration and without the
delivery of a current prospectus under the Act with respect thereto and then
only against receipt of a letter from such person in which such person
represents that he is acquiring the Registrable Securities for his own account
for investment purposes and not with a view to distribution, and in which such
person agrees to comply with the provisions of this paragraph (i) with respect
to any resale or other disposition of such securities, or (B) to any person
upon delivery of a prospectus then meeting the requirements of the Act relating
to such Securities and the offering thereof for such sale or disposition.
11. All expenses, including but not limited to attorneys' fees, incurred in
connection with the preparation of this Warrant shall be borne by the Company.
12. All notices, requests, deliveries, payments, demands and other
communications which are required or permitted to be given under this Warrant
shall be in writing and shall be deemed to have been duly given when either
delivered by hand or on the second business day following mailing thereof, if
mailed in the United States by registered, certified or express mail, return
receipt requested, postage prepaid, or on the business day following delivery
to Federal Express, if addressed to the parties at the following addresses set
forth herein, or to such other address as either, or in the case of a
transferee of a holder, as such transferee, shall have specified by notice in
writing to the other. Same shall be deemed duly given hereunder when so
delivered or mailed as the case may be:
If to the Company. Continental Heritage Corporation
If to the Holder:
13. Jurisdiction over all claims and controversies under, arising out of or
relating to the Warrant and the Warrant Shares, shall be with the courts of the
States of Nevada, Florida and Delaware and the Federal Courts situated within
such three states to which the Company and the Holder hereby consent to and
submit themselves.
14. This Warrant represents the sole and entire agreement of the parties with
respect to the subject matter hereof and may not be modified without the
written consent of the party to be charged with such modification.
ATTEST:
By:
Secretary President
Dated [ ], 1999
WARRANT SHARE PURCHASE FORM
Pursuant to a Warrant issued by Continental Heritage Corporation, a Delaware
corporation (the "Company"), dated as of , 1999, the undersigned hereby
irrevocably elects to exercise this warrant to the extent of purchasing
shares of Common Stock, $.10 par value (the "Warrant Shares"), of the Company
as provided for therein.
Payment of the full Purchase Price of the Warrant Shares is enclosed herewith,
in the form of a check made payable to the Company.
The undersigned requests that a certificate for the Warrant Shares be issued in
the name of:
----------------
----------------
----------------
(Please print name, address and social security number)
Dated: , 19
Address:
------------------
------------------
------------------
Signature:
EXHIBIT 10.14
SHAREHOLDERS' NON-RECOURSE PLEDGE AGREEMENT
THIS AGREEMENT is made as of this 9th day of February 1999, by and between
ROBERT BRAY, STEVE GOULD, GERALD HOLLAND and LEE KAPLAN ("Pledgors"),and JULES
ROSS, RICHARD A. HAHNER, CASE HOLDINGS, INC., PETER CASORIA, JR., PETER
CASORIA, SR., DENNIS LOPEZ and GERALD M. HOLLAND ("Lenders").
W I T N E S S E T H :
A.. Continental Heritage Corporation, a Delaware corporation, ("Borrower"),
has executed and delivered to Lenders a promissory note of even date in the
principal sum of One Million Dollars ($1,000,000) (the "Note"), which Note has
been issued pursuant to a Loan Agreement ("Loan Agreement") of even date by and
among the Borrower, the Lenders and the Pledgors.
B. As an inducement to Lenders to make the loan to Borrower, Pledgors have
agreed to execute this Agreement so as to provide security for the repayment of
the Note and performance by the Borrower and Pledgors of their agreements and
covenants contained in the Note and the Loan Agreement. Pledgors have agreed
to pledge all the shares of Common Stock, $.10 par value, of Borrower
beneficially owned by each hereunder, all as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing recitals, for good and
valuable consideration, and intending to be legally bound hereby, Pledgors
irrevocably and unconditionally agree as follows:
1. Definition of "Collateral". The term "Collateral" shall mean the
following:
(a) shares of the Borrower's Common Stock beneficially owned by each of the
Pledgors, as follows:
Robert Bray - 550,000 shares
Steve Gould* - 2,090,382 shares
Gerald Holland - 247,500 shares
Lee Kaplan - 2,090,382 shares
*Held of record by Fat Cat, LLC
(b) Class A Warrants to be acquired by Steve Gould and Lee Kaplan, as
follows:
Steve Gould 112,000 Class A Warrants
Lee Kaplan 112,000 Class A Warrants
2. Pledge of Collateral. As security for the repayment of the Note by the
Borrowers and performance by each of the Borrowers and Pledgors of the
agreements, conditions, covenants, provisions or stipulations contained in the
Note and the Loan Agreement, each Pledgor hereby pledges and grants to Lenders
a first and prior security interest in the Collateral.
3. Delivery of Collateral. At the execution hereof, Pledgors shall deliver to
Lenders the certificate(s) representing the Collateral, duly endorsed for
transfer.
4. Representations, Warranties and Covenants of Pledgor. Each Pledgor
represents, warrants and covenants to Lenders that:
(a) He is the legal and
beneficial owner of the Collateral;
(b) The Collateral is owned by such Pledgors free and clear of all security
interests, restrictions, charges and other encumbrances of any nature, other
than the lien created hereby;
(c) The execution, delivery and performance of this Pledge Agreement do not
violate the provisions of or cause a default or constitute an event which, with
notice and/or lapse of time, would constitute a default, on the part of
Pledgor, under any law or any contract, agreement, other instrument or judgment
or decree to which such Pledgors is a party or by which it is bound;
(d) The Collateral is not, to the best of such Pledgor's knowledge, the
subject of any present or threatened suit, action, arbitration or
administrative or other proceeding, and Pledgors knows of no reasonable grounds
for the institution of any such proceeding;
(e) No approvals are required by any governmental or regulatory body, or other
third party in connection with the pledge of the Collateral;
(f) Pledgors shall, at their own expense, defend the Lenders' right, title and
security interest in and to the Collateral against the claims of any person,
corporation or other entity;
(g) Such Pledgors shall not:
(i) Sell, convey or otherwise dispose of any of the Collateral or any
interest therein without the prior written consent of Lenders and unless any
such purchaser or transferee shall agree in writing for the Shares so
transferred to be Collateral hereunder and to be bound by both the terms of
this Agreement; or
(ii) Create, incur or permit to exist any security interest, lien, charge or
encumbrance whatsoever with respect to any of the Collateral, other than the
lien created hereby;
(h) This Agreement constitutes the valid and binding obligation of such
Pledgors, enforceable in accordance with its terms; and
(i) In the event there is a reclassification or recapitalization of the
capital stock of the Borrower or the Borrower shall be a party to a merger or
consolidation or sell its assets, and as a result of such event different
securities or property shall be issued to the shareholders of the Borrower,
such other securities or property shall be delivered by the Pledgors to the
Lenders to be held by the Lenders as part of the Collateral hereunder.
5. Custodial Duties of Lender. Lenders' sole duty with respect to the
Collateral shall be to exercise reasonable care in the physical custody and
preservation of the Collateral. Lenders shall be relieved of all
responsibility for the Collateral, or any portion thereof, upon surrendering it
or tendering surrender of it to the Pledgors.
6. Powers of Lenders With Respect to Collateral.
(a) Lenders shall have the power, in his sole discretion, and without notice
to Pledgor, to execute all necessary endorsements, assignments or other
instruments of conveyances or transfer with respect to the Collateral to effect
Lenders' remedies under paragraph 10, but shall be under no duty or
responsibility to exercise or withhold the exercise of such right, and shall
not have any liability for any failure or delay in doing so, other than to
account for property actually received by Lender.
(b) Each Pledgor hereby irrevocably makes, constitutes and appoints Lenders or
a designee of Lenders as Pledgor's true and lawful attorney in fact to take one
or more of the actions, rights, powers, privileges, and options set forth in
sub-section 6(a).
7. Further Assurances. Upon written request by Lender, Pledgors shall execute
and endorse assignments or other documents and do such further acts and things
as Lenders may request to effect the purpose of this Agreement.
8. Event of Default. The following shall each constitute an event of default
("Event of Default") hereunder:
(a) The occurrence of a default as defined in the Note;
(b) Any failure by the Borrower or the Pledgors to observe or perform any of
the provisions of the Loan Agreement.
9. Remedies Upon Event of Default. Upon the occurrence of an Event of
Default, Lenders shall have the right to do any of the following:
(a) Lenders may exercise all the rights and remedies given to a secured party
after default by the Delaware Uniform Commercial Code provided at least thirty
(30) days written notice is given by Lenders to Pledgors of the occurrence of
an Event of Default.
(b) Lenders may immediately convert the Collateral to cash and apply such cash
to the outstanding sums due from Borrower to Lenders pursuant to the Note.
(c) Lenders may exercise the conditional irrevocable proxy granted to them
with respect to the Collateral to the extent set forth in Section 11 below.
(d) The remedies provided herein in favor of Lenders shall not be deemed
exclusive, but shall be cumulative, and shall be in addition to all other legal
and equitable remedies which Lenders may have.
10. Non-Recourse. Anything in this Agreement to the contrary notwithstanding,
(i) the Lenders shall look solely and only to the Collateral for satisfaction
of any and all remedies which they may have as against the Pledgors hereunder
on account of the Note, the Loan Agreement, the Collateral and/or at law or in
equity; and (ii) the Lenders shall not seek any deficiency or other judgment
against the Pledgors or their successors, heirs at law or assigns in the event
that the Collateral shall be insufficient to pay the costs and expenses of the
sale and unpaid balance of the Note or any other obligations arising or related
to the default in payment of the interest and/or principal of the Note or on
account of any breach of any covenant or agreement of the Pledgors under the
Loan Agreement. The foregoing provisions of this Section shall not be
construed or interpreted to limit or impair the rights of the Lenders to
procure any judgment to enforce collection of the Note or as against the
Collateral but only to preclude the enforceability of such judgment as against
any other asset or otherwise against the Pledgors.
11. Termination of Pledge and Proxy. This Agreement shall remain in full
force and effect until such time as the loan evidenced by the Note is repaid in
full, at which time the pledge of the Collateral and the Conditional
Irrevocable Proxies shall be deemed terminated and of no further force and
effect. Upon such termination, the Collateral shall be returned to the
Pledgors.
12. Agent for Lenders. The Lenders hereby appoint Gerald Holland as their
agent and representative to exercise all of their rights hereunder upon the
occurrence of an Event of Default including but not limited to the conversion
of the Collateral as provided in this Agreement and the exercise of the
Conditional Irrevocable Proxy as provided in said Conditional Irrevocable
Proxy.
13. Miscellaneous.
(a) Notices. All notices, requests, demands and other communications
relating to this Agreement, and the transactions contemplated herein shall be
in writing and shall be deemed to have been duly given or made when delivered
against receipt or mailed by certified mail, postage prepaid, return receipt
requested, at the addresses for each of the parties set forth in the Loan
Agreement. No change of address shall be effective as against Lenders unless
Pledgors shall have advised Lenders of the changed address in writing, mailed
to Lenders by certified mail, return receipt requested, postage prepaid.
(b) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their successors and assigns.
(c) Choice of Law. This Agreement shall be governed in all respects by, and
construed and enforced in accordance with, the laws of the State of Delaware.
(d) Waiver. Neither the failure nor any delay on the part of Lenders to
exercise any right, remedy, power or privilege under this Pledge Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any other right, remedy, power or privilege preclude any other or further
exercise of any right, remedy, power or privilege, nor shall any waiver of any
right, remedy, power or privilege with respect to any occurrence be construed
as a waiver of such right, remedy, power or privilege with respect to any
subsequent occurrence.
(e) Provisions Separable. The provisions of this Agreement are independent
of and separable from each other, and no provision shall be affected or
rendered invalid or enforceable by virtue of the fact that for any reason any
other or others of them may be invalid or unenforceable in whole or in part.
(f) Entire Agreement. This Agreement may not be modified or amended other
than by an agreement in writing signed by Pledgors and Lenders.
(g) Singular. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
(h) Computation. In computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls on
a Saturday, Sunday or holiday, then the final day shall be deemed to be the
next day which is not a Saturday, Sunday or holiday.
(i) Headings. The Paragraph headings in this Agreement are for convenience
of reference only; they form no part of this Agreement and shall not affect its
interpretation.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single instrument. It shall not be necessary that
any counterpart be signed by all of the parties thereto.
IN WITNESS WHEREOF, Pledgors and Lenders have caused this Pledge Agreement to
be executed on the date first above written.
Lenders:
JULES ROSS ROBERT BRAY
RICHARD A. HAHNER STEVE GOULD
PETER CASORIA, JR. GERALD M. HOLLAND
PETER CASORIA, SR. LEE KAPLAN
FAT CAT, LLC
DENNIS LOPEZ
By:
Steve Gould
GERALD M. HOLLAND
CASE HOLDINGS, INC.
By:
EXHIBIT 10.15
IRREVOCABLE PROXY
The undersigned hereby irrevocably appoints Gerald M. Holland the
representative of the persons designated as Investors under a certain Loan
Agreement dated February 9, 1999 ("Agreement") his or its attorney, agent and
proxy, with full power of substitution, for the undersigned and in the name,
place and stead of the undersigned to vote or, if applicable, to give written
consent, in such manner as such attorneys, agents and proxies or their
substitutes shall in their sole discretion deem proper to so vote (or consent)
with respect to all Voting Shares (as defined below) which the undersigned is
or may be entitled to vote at any meeting of Continental Heritage Corporation,
a Delaware corporation ("Corporation"), held after the date hereof, whether
annual or special and whether or not an adjourned meeting (each a "Stockholder
Meeting"), or, if applicable, to give written consent with respect thereto.
This Proxy is given under and pursuant to the terms of the Agreement in
connection with a loan made by the Lenders to the Corporation. This Proxy is
coupled with an interest, shall be irrevocable and binding on any successor in
interest of the undersigned and shall not be terminated by operation of law
upon the occurrence of any event, including, without limitation, the death or
incapacity of the undersigned. This Proxy shall operate to revoke any prior
proxy as to the shares. For purposes of this irrevocable proxy, the term
"Voting Shares" shall mean all voting securities of the Corporation whether
owned on the date hereof or acquired hereafter (including without limitation,
any shares of Common Stock or Preferred Stock).
THIS PROXY MAY BE USED BY THE INVESTORS AT ANY TIME PRIOR TO REPAYMENT OF THE
INITIAL LOAN AND/OR THE ADDITIONAL LOAN TO VOTE ON MAJOR DECISIONS PRESENTED
TO THE CORPORATION, PROVIDED HOWEVER, THAT THIS PROXY MAY NOT BE USED BY THE
INVESTORS TO VOTE TO REMOVE ANY DIRECTOR OR OFFICER FROM THE CORPORATION FOR
REASONS OTHER THAN GROSS NEGLIGENCE, THEFT, OR LEGAL INCOMPETENCY. FURTHER,
THE INVESTORS MAY NOT VOTE TO ELECT ANY PERSON AS A DIRECTOR OF THE CORPORATION
OTHER THAN THOSE PERSONS CURRENTLY HOLDING THAT POSITION. THIS PROXY
TERMINATES UPON REPAYMENT OF THE INITIAL LOAN AND/OR THE ADDITIONAL LOAN TO THE
INVESTORS.
/s/ Steve Gould
/s/ Lee Kaplan
Dated: February 9, 1999
EXHIBIT 10.16
SUBORDINATED PROMISSORY NOTE
$56,000 February 9, 1999
FOR VALUE RECEIVED, Continental Heritage Corporation, a Delaware corporation,
having its principal business office at 2140 America's Cup Circle, Las Vegas,
NV 89117 ("Maker"), promises to pay the order of Steve Gould ("Payee"), the
principal sum of Fifty Six Thousand Dollars ($56,000) lawful money of the
United States of America, together with interest at the annual rate of ten
percent (10%) per annum from the date hereof, on the terms set forth herein, as
follows:
1. This Note has been issued by Maker in exchange for, and in substitution of,
a certain promissory note of Maker dated October 1, 1998, payable to Payee in
the amount of $56,000.
2. (a) Interest hereon shall accrue, in arrears, without setoff or deduction,
from the date hereof and continuing until the Maturity Date (as hereinafter
defined). Payment of accrued interest prior to the Maturity Date, as defined
below, shall be made on the last day of each month commencing with the month of
September, 1999 and on the Maturity Date.
(b) Commencing on the last day of March, 2000, and on the last day of each
month thereafter to and including the Maturity Date, Maker shall make six (6)
consecutive principal payments of Nine Thousand Three Hundred Thirty Three
Dollars ($9,333), each of which principal payments shall be accompanied by a
payment of interest as provided in Section 2(a) above on the unpaid principal
balance of this Note at the rate provided.
(c) The entire unpaid principal balance of this Note and all interest
accrued thereon but not previously paid and all other sums payable hereunder,
shall be due and payable in full on August 31, 2000 (the "Maturity Date").
3. The principal and interest shall be payable to the Payee at the address
Payee from time to time may designate in writing.
4. Maker shall have the privilege of prepaying this Note in full but not in
part without penalty, at any time, provided not less than twenty (20) days
written notice of such election is given by Maker to the Payees.
5. It is further understood, however, that should any default be made in the
payment of any installment of principal and interest or any other payment due
under this Note on the date such payment is due, then the Payee, at his option
and without notice to Maker unless expressly required elsewhere in this Note
may declare due and payable immediately the entire unpaid balance of principal
and all other sums due by Maker under this Note, with interest accrued on it at
the applicable rate specified above to the date of default and after that date
at a "default rate" which shall be highest rate of interest permitted under the
laws of Nevada, notwithstanding anything to the contrary in this Note or in the
Loan Agreement; and payment may be enforced and recovered in whole or in part
at any time by one or more of the remedies provided to Payee in this Note. In
such a case Payee may also recover all costs of suit and other expenses in
connection with it, together with reasonable attorneys' fees for collection,
together with interest on any judgment obtained by Payees at the default rate
(defined above), including interest at the default rate from and after the date
of any execution, judicial or foreclosure sale until actual payment is made to
Payees of the full amount due Payees.
6. The Payee shall not exercise any right or remedy provided for herein
because of any default of Maker unless Maker shall have failed to pay the
outstanding sums within a period of five (5) business days after the date of
the notice of default has been given by the Payee; provided, however, Payee
shall not be required to give any such notice or to allow any part of the grace
period if Maker shall have filed a petition in bankruptcy or reorganization or
a bill in equity or otherwise initiated proceedings for the appointment of a
receiver of its assets, or if Maker shall have made an assignment for the
benefit of creditors, or if a receiver or trustee is appointed for Maker and
such appointment or such receivership is not terminated within thirty (30)
days.
7. Payees failure to exercise his option to accelerate the indebtedness
evidenced by this Note shall not constitute a waiver of the right to exercise
that option at any other time so long as that event of default remains
outstanding and uncured, or to exercise it upon the occurrence of another
default.
8. The remedies of Payee as provided in this Note shall be cumulative and
concurrent; may be pursued singly, successively, or together at the sole
discretion of Payee, may be exercised as often as occasion for their exercise
shall occur; and in no event shall the failure to exercise any such right or
remedy be construed as a waiver or release of it.
9. Maker waives presentment for payment, demand, notice of demand, notice of
nonpayment or dishonor, protest and notice of protest of this note, and all
other notices in connection with the delivery, acceptance, performance,
default, or enforcement of the payment of this Note, and it agrees that its
liability shall be unconditional, without regard to the liability of any other
party, and shall not be affected in any manner by any indulgence, extension of
time, renewal, waiver, or modification granted or consented to by Payees.
10. If any provision of this Note is held to be invalid or unenforceable by a
Court of competent jurisdiction, the other provisions of this Note shall remain
in full force and effect and shall be construed liberally in favor of Payees in
order to effectuate the provisions of this Note. In no event shall the rate of
interest payable under this Note exceed the maximum rate of interest permitted
to be charged by the laws of Nevada (including the choice of law rules) and any
interest paid in excess of the permitted rate shall be refunded to Maker. That
refund shall be made by application of the excessive amount of interest paid
against any sums outstanding and shall be applied in such order as Payee may
determine. If the excessive amount of interest paid exceeds the sums the
outstanding, the portion exceeding the sums outstanding shall be refunded in
cash by Payee. Any crediting or refund shall not cure or waive any default by
Maker under this Note. Maker agrees, however, that in determining whether or
not any interest payable under this Note exceeds the highest rate permitted by
law, any non-principal payment including, without limitation, prepayment fees
and late charges shall be deemed, to the extent permitted by law, to be an
expense, fee, premium or penalty rather than interest.
11. Payee shall not be deemed, by any act or omission or commission, to have
waived any of their rights or remedies under this Note unless the waiver is in
writing and signed by Payee, and then only to the extent specifically set forth
in the writing. A waiver on one event shall not be construed as continuing or
as a bar to or waiver of any right or remedy to a subsequent event.
12. This instrument shall be governed by and construed according to the laws
of the State of Nevada.
13. The Payee, by his acceptance of this Subordinated Promissory Note, agrees
that the indebtedness evidenced by this Note and the payment of the principal
and interest on this Note is expressly subordinated, to the extent and in the
manner hereinafter set forth in right of payment to the prior payment in full
of the interest and principal of a certain Promissory Note of the Maker dated
February 12, 1999 payable to Gerald Holland, as Disbursement Agent, for Jules
Ross, Richard A. Hahner, Case Holdings, Inc., Peter Casoria, Jr., Peter
Casoria, Sr., Dennis Lopez and Gerald M. Holland as Payees. By reason of such
subordination, the Payee acknowledges and agrees that no payment of principal
or interest may be made on this Note unless at such time all payments of
principal and interest then due on the Promissory Note has at the time been
paid.
14. All payments under this Note shall be made in such coin or currency of the
United States of America as at the time of payment shall be legal tender for
the payment of public or private debts.
15. Time is of the essence as to each provision of this Note which requires
Maker to take any action within a specified time period.
MAKER AND PAYEES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT EITHER MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, VERBAL OR WRITTEN STATEMENTS OR ACTIONS OF EITHER
PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR PAYEES TO MAKE THE
LOAN EVIDENCED BY THIS NOTE.
IN WITNESS WHEREOF, Maker, intending to be legally bound, has duly executed
and delivered this Note.
CONTINENTAL HERITAGE CORPORATION
By: /s/ Steve Gould
Steve Gould, President
EXHIBIT 10.17
SUBORDINATED PROMISSORY NOTE
$56,000 February 9, 1999
FOR VALUE RECEIVED, Continental Heritage Corporation, a Delaware corporation,
having its principal business office at 2140 America's Cup Circle, Las Vegas,
NV 89117 ("Maker"), promises to pay the order of Lee Kaplan ("Payee"), the
principal sum of Fifty Six Thousand Dollars ($56,000) lawful money of the
United States of America, together with interest at the annual rate of ten
percent (10%) per annum from the date hereof, on the terms set forth herein, as
follows:
1. This Note has been issued by Maker in exchange for, and in substitution of,
a certain promissory note of Maker dated October 1, 1998, payable to Payee in
the amount of $56,000.
2. (a) Interest hereon shall accrue, in arrears, without setoff or deduction,
from the date hereof and continuing until the Maturity Date (as hereinafter
defined). Payment of accrued interest prior to the Maturity Date, as defined
below, shall be made on the last day of each month commencing with the month of
September, 1999 and on the Maturity Date.
(b) Commencing on the last day of March, 2000, and on the last day of each
month thereafter to and including the Maturity Date, Maker shall make six (6)
consecutive principal payments of Nine Thousand Three Hundred Thirty Three
Dollars ($9,333), each of which principal payments shall be accompanied by a
payment of interest as provided in Section 2(a) above on the unpaid principal
balance of this Note at the rate provided.
(c) The entire unpaid principal balance of this Note and all interest accrued
thereon but not previously paid and all other sums payable hereunder, shall be
due and payable in full on August 31, 2000 (the "Maturity Date").
3. The principal and interest shall be payable to the Payee at the address
Payee from time to time may designate in writing.
4. Maker shall have the privilege of prepaying this Note in full but not in
part without penalty, at any time, provided not less than twenty (20) days
written notice of such election is given by Maker to the Payees.
5. It is further understood, however, that should any default be made in the
payment of any installment of principal and interest or any other payment due
under this Note on the date such payment is due, then the Payee, at his option
and without notice to Maker unless expressly required elsewhere in this Note
may declare due and payable immediately the entire unpaid balance of principal
and all other sums due by Maker under this Note, with interest accrued on it at
the applicable rate specified above to the date of default and after that date
at a "default rate" which shall be highest rate of interest permitted under the
laws of Nevada, notwithstanding anything to the contrary in this Note or in the
Loan Agreement; and payment may be enforced and recovered in whole or in part
at any time by one or more of the remedies provided to Payee in this Note. In
such a case Payee may also recover all costs of suit and other expenses in
connection with it, together with reasonable attorneys' fees for collection,
together with interest on any judgment obtained by Payees at the default rate
(defined above), including interest at the default rate from and after the date
of any execution, judicial or foreclosure sale until actual payment is made to
Payees of the full amount due Payees.
6. The Payee shall not exercise any right or remedy provided for herein
because of any default of Maker unless Maker shall have failed to pay the
outstanding sums within a period of five (5) business days after the date of
the notice of default has been given by the Payee; provided, however, Payee
shall not be required to give any such notice or to allow any part of the grace
period if Maker shall have filed a petition in bankruptcy or reorganization or
a bill in equity or otherwise initiated proceedings for the appointment of a
receiver of its assets, or if Maker shall have made an assignment for the
benefit of creditors, or if a receiver or trustee is appointed for Maker and
such appointment or such receivership is not terminated within thirty (30)
days.
7. Payees failure to exercise his option to accelerate the indebtedness
evidenced by this Note shall not constitute a waiver of the right to exercise
that option at any other time so long as that event of default remains
outstanding and uncured, or to exercise it upon the occurrence of another
default.
8. The remedies of Payee as provided in this Note shall be cumulative and
concurrent; may be pursued singly, successively, or together at the sole
discretion of Payee, may be exercised as often as occasion for their exercise
shall occur; and in no event shall the failure to exercise any such right or
remedy be construed as a waiver or release of it.
9. Maker waives presentment for payment, demand, notice of demand, notice of
nonpayment or dishonor, protest and notice of protest of this note, and all
other notices in connection with the delivery, acceptance, performance,
default, or enforcement of the payment of this Note, and it agrees that its
liability shall be unconditional, without regard to the liability of any other
party, and shall not be affected in any manner by any indulgence, extension of
time, renewal, waiver, or modification granted or consented to by Payees.
10. If any provision of this Note is held to be invalid or unenforceable by a
Court of competent jurisdiction, the other provisions of this Note shall remain
in full force and effect and shall be construed liberally in favor of Payees in
order to effectuate the provisions of this Note. In no event shall the rate of
interest payable under this Note exceed the maximum rate of interest permitted
to be charged by the laws of Nevada (including the choice of law rules) and any
interest paid in excess of the permitted rate shall be refunded to Maker. That
refund shall be made by application of the excessive amount of interest paid
against any sums outstanding and shall be applied in such order as Payee may
determine. If the excessive amount of interest paid exceeds the sums the
outstanding, the portion exceeding the sums outstanding shall be refunded in
cash by Payee. Any crediting or refund shall not cure or waive any default by
Maker under this Note. Maker agrees, however, that in determining whether or
not any interest payable under this Note exceeds the highest rate permitted by
law, any non-principal payment including, without limitation, prepayment fees
and late charges shall be deemed, to the extent permitted by law, to be an
expense, fee, premium or penalty rather than interest.
11. Payee shall not be deemed, by any act or omission or commission, to have
waived any of their rights or remedies under this Note unless the waiver is in
writing and signed by Payee, and then only to the extent specifically set forth
in the writing. A waiver on one event shall not be construed as continuing or
as a bar to or waiver of any right or remedy to a subsequent event.
12. This instrument shall be governed by and construed according to the laws
of the State of Nevada.
13. The Payee, by his acceptance of this Subordinated Promissory Note, agrees
that the indebtedness evidenced by this Note and the payment of the principal
and interest on this Note is expressly subordinated, to the extent and in the
manner hereinafter set forth in right of payment to the prior payment in full
of the interest and principal of a certain Promissory Note of the Maker dated
February 12, 1999 payable to Gerald Holland, as Disbursement Agent, for Jules
Ross, Richard A. Hahner, Case Holdings, Inc., Peter Casoria, Jr., Peter
Casoria, Sr., Dennis Lopez and Gerald M. Holland as Payees. By reason of such
subordination, the Payee acknowledges and agrees that no payment of principal
or interest may be made on this Note unless at such time all payments of
principal and interest then due on the Promissory Note has at the time been
paid.
14. All payments under this Note shall be made in such coin or currency of the
United States of America as at the time of payment shall be legal tender for
the payment of public or private debts.
15. Time is of the essence as to each provision of this Note which requires
Maker to take any action within a specified time period.
MAKER AND PAYEES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT EITHER MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, VERBAL OR WRITTEN STATEMENTS OR ACTIONS OF EITHER
PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR PAYEES TO MAKE THE
LOAN EVIDENCED BY THIS NOTE.
IN WITNESS WHEREOF, Maker, intending to be legally bound, has duly executed
and delivered this Note.
CONTINENTAL HERITAGE CORPORATION
By: /s/Steve Gould
Steve Gould, President
Exhibit 21
CONTINENTAL HERITAGE CORPORATION
LIST OF SUBSIDIARIES
Encore International, Inc.
VisionQuest Worldwide, Inc.
Note: Effective February 5, 1999, Encore International, Inc. was merged into
VisionQuest Worldwide, Inc. VisionQuest Worldwide, Inc. is the surviving
corporation.
